Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc.

2017 Ohio 8727

• Court: Ohio Court of Appeals
• Decided: November 29, 2017
• Docket: C-160789, C-160793
• Status: Published

Opinion

[Cite as Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc., 2017-Ohio-

8727.] IN THE COURT OF APPEALS FIRST APPELLATE DISTRICT OF OHIO HAMILTON COUNTY, OHIO

SUN BUILDING LIMITED : APPEAL NOS. C-160789 PARTNERSHIP, C-160793 : TRIAL NO. A-1404504 LITVAK HOLDING, LLC, : and O P I N I O N. : TRIAGE PROPERTIES, LLC, : Plaintiffs-Appellants-Cross- Appellees, :

OHIO ATTORNEY GENERAL, :

and :

OHIO DEPARTMENT OF : EDUCATION, : Intervenors-Plaintiffs-Appellees, : vs. : VALUE LEARNING & TEACHING ACADEMY, INC., d.b.a. VLT : ACADEMY, : Defendant-Appellee-Cross-Appellant, : and : VALERIE LEE, Individually and as Superintendent of VLT Academy, :

CLYDE LEE, Individually and as : Registered Agent of CEED, Inc.,

VALERIE WATSON, : [Cite as Sun Bldg. Ltd. Partnership v. Value Learning & Teaching Academy, Inc., 2017-Ohio-

8727.] LAWRENCE JONES, :

CANDACE GREEN, :

DANIEL CUMMINS, :

BRAD MOELLER, :

GAIL WHITE, :

KELLY M. JOHNSON, :

ROBERT L. MONTGOMERY, :

JUDY MCCONNELL, :

LARRY LASH, Individually and as : Treasurer of VLT, : CHRIST TABERNACLE MINISTRIES OF EXCELLENCE, INC., d.b.a. : EDUCATIONAL RESOURCE CONSULTANTS OF OHIO, INC., :

J. LEONARD HARDING, Executive : Director of Educational Resource Consultants of Ohio, Inc., :

Defendants-Appellees, :

RON DUMAS, et al. :

Defendants. :

Civil Appeals From: Hamilton County Court of Common Pleas

Judgment Appealed from is: Affirmed

Date of Judgment Entry on Appeal: November 29, 2017 OHIO FIRST DISTRICT COURT OF APPEALS

McIntosh & McIntosh, PLLC, and Bruce B. McIntosh, for Plaintiffs-Appellants- Cross-Appellees Sun Building Limited Partnership, Litvak Holdings, LLC, and Triage Properties, LLC,

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. OHIO FIRST DISTRICT COURT OF APPEALS

M YERS , Judge.

{¶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 R.C. Chapter

3314. VLT was sponsored by defendant-appellee Christ Tabernacle Ministries of

Excellence, Inc., d.b.a. Educational Resource Consultants of Ohio, Inc., (“ERCO”).

The Landlords not only leased the properties to house the school, but they also

allegedly improved them to house the school’s campus based on promises from VLT

that the school would continue to operate there. VLT eventually incurred large

operating losses and fell behind on rent. The Landlords accepted reduced rent based

on an alleged agreement with VLT that the arrearages would be paid during the

succeeding years.

4 OHIO FIRST DISTRICT COURT OF APPEALS

{¶3} Because of the school’s financial and educational problems, ERCO

declined to renew its sponsorship contract with the school that expired after the

2013-2014 school year. VLT was not able to secure another sponsor, and is now

defunct and insolvent.

{¶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

5 OHIO FIRST DISTRICT COURT OF APPEALS

Lees’ daughter), former VLT treasurer McConnell, and the Hartford Fire Insurance

Company, the alleged surety for Lee and McConnell on public official bonds, seeking

the recovery of public funds. The ODE/AG also sought a declaration that the

Landlords’ leases with VLT were invalid.

{¶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 R.C. 1702.50(A)(1) and 3314.074, the trial court ordered

the presentation and proofs of all claims against VLT. Ultimately, 33 former teachers

and administrators submitted claims for the payment of wages and retirement-

contribution benefits. The Landlords submitted claims for the unpaid rent.

Applying R.C. 3314.074, the trial court issued a final order of distribution, and gave

preference to the employee claims over those of the Landlords. The trial court

subsequently stayed this order of distribution.

{¶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

6 OHIO FIRST DISTRICT COURT OF APPEALS

Defendants and the VLT Director and Officer Defendants moved to dismiss the

claims under Civ.R. 12(B)(6). Lee and Clyde Lee moved for judgment on the

pleadings under Civ.R. 12(C).

{¶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 R.C. Chapter 3314 as state-funded

public schools that are independent of any school district and are privately run. See

R.C. 3314.01(B); R.C. 3314.02(B) and (C)(1); R.C. 3314.08(D); State ex rel. Ohio

Congress of Parents & Teachers v. State Bd. of Edn., 111 Ohio St.3d 568, 2006-Ohio-

5512, 857 N.E.2d 1148, ¶ 7.

{¶14} Community schools must be structured as nonprofit corporations or

public-benefit corporations as contemplated in R.C. Chapter 1702. See R.C.

3314.03(A)(1). By statute, each community school is “under the direction” of a

1 The Landlords voluntarily dismissed Ron Dumas, one of the named VLT Director and Officer Defendants.

7 OHIO FIRST DISTRICT COURT OF APPEALS

“governing authority” that consists of a board of at least five individuals. R.C.

3314.02(E)(1). Every community school enters into and is governed by a contract

with an authorized “sponsor” that monitors the school’s performance and its

compliance with all laws applicable to the school. R.C. 3314.03(A)(4). The sponsor

contract must contain certain information, including an addendum identifying the

facilities to be used for the school, “the annual costs associated with leasing each

facility that are paid by or on behalf of the school,” and the name of the landlord.

R.C. 3314.03(9).

{¶15} As required by statute, VLT was established as a nonprofit corporation

under R.C. Chapter 1702, see R.C. 3314.03(A)(1), with a board of directors serving as

the governing authority of the school. As the governing authority of VLT, the board

of directors entered into a “sponsorship contract” with the school’s sponsor, ERCO,

beginning in 2005. As sponsor, ERCO was charged with monitoring VLT’s

performance and its compliance with applicable standards and requirements. See

R.C. 3314.03(A)(4). ERCO and VLT’s board renewed the sponsor contract until

ERCO declined to renew it beyond the 2013-2014 school year. When the sponsor

agreement with ERCO expired on June 30, 2014, VLT was unable to find another

sponsor and the school closed.

{¶16} Under R.C. 3314.071, any contract entered into by the governing

authority of a community school or any of its officers and directors is deemed to be

entered into by the individual in her official capacity. The statute continues: “[n]o

officer, director, or member of the governing authority [of VLT] incurs any personal

liability by virtue of entering into any contract on behalf of the school.” Under R.C.

3314.07(E), ERCO (as sponsor), its directors, officers, and employees, are “immune

8 OHIO FIRST DISTRICT COURT OF APPEALS

from civil liability for any action authorized under [R.C. Chapter 3314.] or the

contract entered into with the school under section 3314.03 of the Revised Code that

is taken to fulfill the sponsor’s responsibility to oversee and monitor the school.”

Specifically, ERCO and its officers, directors, and employees

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.

R.C. 3314.07(E).

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

9 OHIO FIRST DISTRICT COURT OF APPEALS

Landlords because the leases were not enforceable, and that, because of this, the trial

court erred by distributing any of VLT’s assets to the Landlords.

{¶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

10 OHIO FIRST DISTRICT COURT OF APPEALS

demonstrating that VLT’s board did not vote to accept the leases after they were

signed.

{¶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 R.C. 3314.02(D) that the board vote to adopt the sponsorship

contract with a sponsor to create a community school.

{¶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); R.C.

3313.33(B) (“No contract shall be binding upon any board [of education] unless it is

made or authorized at a regular or special meeting of such board.”).

{¶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 R.C. 3314.03(9), identified the leased property, the landlords, and the

amount of the rental payments. Therefore, the Landlords established that the board

had authorized the leases before they were executed by Lee and the Landlords. This

11 OHIO FIRST DISTRICT COURT OF APPEALS

is sufficient, and the board was not required to subsequently ratify the contract they

had already authorized.

{¶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 R.C. 3314.074, and relying on the

stipulation that set forth the amount of the claims, the trial court ordered that most

of these proceeds be distributed to the former VLT teachers and administrators

(excluding Lee, McConnell, and Harris) who had made claims for unpaid wages, and

to the appropriate retirement systems to satisfy the employer retirement

contribution for those wages. The court then ordered that the remainder of the

proceeds, about $3000, be distributed pro rata to “the Plaintiffs [Landlords]” based

on the amount of their claims.2

2 The parties represent that the trial court ordered that only Sun Building Limited Partnership receive the remaining funds. The record reflects, however, that while the trial court initially indicated to the parties by a letter on July 1, 2016, that only Sun Building Limited Partnership would receive the sum of $2,830.06, in its subsequent judgment entry dated September 22, 2016, the court ordered the remaining sums to be distributed “pro rata” to the Landlords.

12 OHIO FIRST DISTRICT COURT OF APPEALS

{¶27} When explaining the distribution order, the trial court stated that R.C.

3314.074 gave it “discretion to distribute the property of a closed community school

according to the equities of the case.” And the court found that the equities of the

case required that it give priority to the employee-related claims over the claims of

the other creditors, such as the Landlords. The court noted that those former

employees had no culpability for the school’s financial troubles and no way to protect

themselves from those problems, and the Landlords could have avoided some of

their claimed losses by “acting more quickly to enforce their rights under the leases,

but chose not to do so.” The court also noted that preferring the employees was

“consistent with Ohio’s pattern of generally preferring employee claims over claims

of general creditors.” On appeal, the Landlords contend that the court erred by

preferring the employee-related claims because R.C. 3314.074 unambiguously

required a pro rata distribution. We disagree.

{¶28} R.C. 3314.074 governs the distribution of the assets of defunct

community schools and provides in relevant part:

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

13 OHIO FIRST DISTRICT COURT OF APPEALS

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 or 3313.65 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 R.C. 3314.074, the assets of a closed

community school must be distributed “first to the retirement funds of employees of

the school, employees of the school, and private creditors who are owed

compensation”—all of which are in the same class of payees. R.C. 3314.074(A). If

there are any remaining funds, they shall be paid to the school districts where the

community school’s students resided on a pro rata basis. R.C. 3314.074(A).

{¶30} In arguing that the trial court erred in its application of R.C. 3314.074,

the Landlords maintain that the statute does not allow for any equitable

14 OHIO FIRST DISTRICT COURT OF APPEALS

considerations and requires an equal division among the three types of payees—

retirement funds, employees, and creditors. R.C. 3314.074(A) provides that money

received from the sale of the defunct community school’s assets “shall be distributed

first to the retirement funds of the employees of the school, employees of the school,

and private creditors who are owed compensation.” (Emphasis added.) But this

argument ignores the language in section (C) authorizing the trial court to determine

the “prioritization of the distribution of assets to individual persons or entities within

each class of payees” if the school’s assets are insufficient to pay all claims. We find,

as the trial court did, that the statute gives the court discretion to determine the

allocation between employee-related and general-creditor claims, so long as the

allocation is in accordance with R.C. 3314.074 and R.C. Chapter 1702.

{¶31} R.C. Chapter 1702 does not specifically address how these claims are to

be allocated. It does, however, contain provisions on the distribution of a nonprofit

corporation’s property during the “winding up” of its affairs, see R.C. 1702.49, and

authorizes the court of common pleas to supervise the resolution of the claims

against that property, see R.C. 1702.50, including the distribution of the property

and the “issuance * * * of any * * * order that the court considers proper.” R.C.

1702.50(A)(9). Although the general rule is that “assets of a dissolved insolvent

corporation should be preserved for the benefit of all its creditors, each to share in

proportion to his claim,” Cay Machine Co. v. Firestone Tire & Rubber Co., 175 Ohio

St. 295, 194 N.E.2d 425 (1963), paragraph one of the syllabus, the common pleas

court has the authority “to ensure that each beneficial owner receives his due

according to the equities of the situation.” Id. at 300 (interpreting identical language

15 OHIO FIRST DISTRICT COURT OF APPEALS

in R.C. 1701.89 that governs the winding up of affairs of an insolvent for-profit

corporation).

{¶32} We also find instructive Ohio laws protecting these unpaid workers

and their retirement funds. For instance, R.C. 1311.34 provides a preference for the

claims of unpaid laborers over those of general, unsecured creditors, for labor that is

performed, as in this case, “within the period of three months” before the employer is

“placed in the hands of an assignee, receiver, or trustee.” And R.C. 3307.41 and

3309.66 shield public school employee and teacher retirement funds from execution

and garnishment, except in certain domestic-relations proceedings.

{¶33} Although we agree that R.C. 3314.074(A) does not specifically state

whether distribution is to be pro rata, in the order listed, or in the court’s discretion,

we cannot accept the interpretation proposed by the Landlords, which would conflict

with R.C. 3314.074(C) and the language of these other referenced statutes. R.C.

3314.074(A) and (C), when considered in pari materia with these other statutes, do

not require the trial court to order a pro rata distribution of assets to the retirement

system, unpaid employees, and the general creditors when the assets of the defunct

community school are insufficient to satisfy the claims of all the payees in that class.

Rather, we conclude that the court has discretion to determine the order of payment

and allocation.

{¶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

16 OHIO FIRST DISTRICT COURT OF APPEALS

not arbitrary, unreasonable, or capricious, and we cannot say that it was an abuse of

discretion. Accordingly, we overrule the first assignment of error.

{¶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 R.C. 3314.071 and 3314.07(E) precluded any contract-based

claims against these parties. Instead, the Landlords’ argument in support of reversal

centers around their contention that they stated claims against the VLT Director and

Officer Defendants, the ERCO Defendants, and Lee and Clyde Lee, based on

allegations that these defendants had “engaged in conduct that [wa]s wanton, willful,

and out of the scope of their employment,” causing the[se] [defendants] to “lose the

immunity provided by statute” and rendering them “civilly liable for the damages

incurred by the [Landlords],” and thus entitling the Landlords “to damages and

payment for the balance due and owing on the leases entered into by the

[defendants].”

{¶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, R.C. 2307.60 does authorize a private cause of action for

damages from any criminal act. See Jacobson v. Kaforey, 149 Ohio St.3d 398, 2016-

17 OHIO FIRST DISTRICT COURT OF APPEALS

Ohio-8434, 75 N.E.3d 203, ¶ 10, 13. And the Landlords alleged that contracts

entered into between Lee and Clyde Lee violated R.C. 2921.42, which prohibits a

public official from having an unlawful interest in a public contract. But the civil

cause of action for damages authorized by R.C. 2307.60 does not arise when

otherwise prohibited by law. Id. at ¶ 13. Here, the Landlords are seeking to recover

public funds for their own private use, which is not permitted under the law. While

the defendants may be public officials that can be held liable for the misuse of public

funds in an action brought by the appropriate state authority, see Cordray v.

Internatl. Preparatory School, 128 Ohio St.3d 50, 2010-Ohio-6136, 941 N.E.2d 1170,

the Landlords do not have standing to bring this claim. We note that the intervenor

attorney general is pursuing these claims at the request of the state auditor.

{¶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 R.C. 2744.03(A)(7).

{¶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.

18 OHIO FIRST DISTRICT COURT OF APPEALS

{¶41} We note that we are disregarding the Landlord’s argument challenging

the purported settlement agreement between the attorney general and Hartford

Insurance. The Landlords did not amend their notice of appeal or file a new notice of

appeal to challenge this agreement, and therefore, this court lacks jurisdiction to

review this argument.

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.

19 OHIO FIRST DISTRICT COURT OF APPEALS

MILLER, J., concurring separately.

{¶45} I concur in the result and with nearly everything stated by the

majority. I write separately to state my view that R.C. 3314.074 affords a trial court

less discretion than the majority indicates.

{¶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 R.C. 3314.074(C), which gives the court

some discretion to control payments, conflicts with R.C. 3314.074(A), which

expressly dictates that funds “redistribut[ed]” to school districts “shall be

proportional to the district’s share of the total enrollment in the community school.”

A court has no discretion concerning how these distributions occur. Nor is the court

even involved in determining which school districts receive a redistribution. That

role is reserved to the Department of Education.

{¶47} R.C. 3314.074(C) speaks to distributions “within each class of payees.”

Since public schools are not a payee class, “retirement funds of employees of the

school, employees of the school, and private creditors who are owed compensation,”

are three payee classes, not one. If these three were a single class, then “within each

class” would be meaningless.

{¶48} I would further hold that R.C. 3314.074(A) states the order in which

payment is required—retirement funds first, employees second, and private creditors

third. This means that a court does not have discretion to order payment be made to

creditors before payment to retirement funds or employees.

20 OHIO FIRST DISTRICT COURT OF APPEALS

{¶49} In sum, I would hold that the court’s discretion is limited to

distributions within each of the three classes set forth above, and that the priority of

distribution is set by statute. Because the trial court ordered payments be made to

employees prior to creditors, I concur in the affirmance.

Please note:

The court has recorded its own entry on the date of the release of this opinion.