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Community School Director Not Responsible for Independent Treasurer’s Embezzlement

Image of a calculator and a pen sitting on top of a small, red notebook

The Court ruled a community school director is not financially responsible for the more than $50,000 embezzled by the school treasurer.

Image of a calculator and a pen sitting on top of a small, red notebook

The Court ruled a community school director is not financially responsible for the more than $50,000 embezzled by the school treasurer.

The state cannot hold a former Dayton community school director financially responsible for the more than $50,000 embezzled by the school treasurer during the 2009-2010 school year, the Supreme Court of Ohio ruled today.

In a 4-3 decision, the Supreme Court ruled  New City Community School Director Robert Burns had no oversight authority of treasurer Carl Shye, who pleaded guilty to federal charges of embezzling funds from New City and other entities. The Ohio Attorney General’s Office sued Burns, Shye, and three others in 2018 to recover the funds, maintaining  state law allowed for Burns, Shye, and the others to be held liable for paying back the state.

Writing for the Court majority, Justice Michael P. Donnelly wrote that under R.C. 9.39 Burns must have “received or collected” the public money to be held strictly liable for its return. Those terms indicate some element of control, Justice Donnelly wrote, and “the record is quite clear that Burns did not control the misappropriated funds.”

Justices Sharon L. Kennedy, R. Patrick DeWine, and Melody Stewart joined Justice Donnelly’s opinion.

In a dissenting opinion, Justice Patrick F. Fischer noted the plain meaning of “collect” includes an “active seeking of funds,” and it was Burns who sought state and federal grants to operate the school. The law does not state Burns had to “control” the money to be responsible for paying it back, and he can be held liable, Justice Fischer concluded.

Chief Justice Maureen O’Connor joined Justice Fischer’s opinion. Justice Jennifer Brunner dissented without a written opinion.

Audit Finds Missing Money
Burns contracted with New City to be the community school’s director for the school year starting in August 2009. Community schools, which are commonly known as charter schools, receive public funds to educate students, but operate independently from elected local boards of education. Burns reported to the New City School Governing Board, and he was granted “general supervision and management authority” over the school and the school’s personnel. The board contracted with Shye as an independent contractor to be the school’s treasurer, and he reported directly to the governing board. Burns did not supervise, manage, or have any authority over Shye.

As part of his duties, Burns approved the school’s budget expenditures using the Ohio Department of Education’s electronic accounting system. Approval of the budget expenditures triggered the release of public money into New City’s bank accounts. Burns had no supervisory responsibilities over those accounts.

During the 2009-2010 school year, New City received about $433,000 in state and federal grants. The auditor of state audited New City in 2012 and concluded  about $50,000 had been misappropriated. The auditor’s finding for recovery did not identify Burns as a person responsible for the misappropriation. Later in 2012, federal authorities named Shye as part of an investigation into public fund embezzlement. He pleaded guilty to embezzlement charges in October 2012.

Attorney General Seeks Repayment
In 2018, the attorney general claimed Burns, Shye, and three other school officials could be held jointly and severally liable under R.C. 9.39 for the missing $50,000. The trial court agreed, granting summary judgment against Burns and ordering him to repay the state.

Burns appealed to the Second District Court of Appeals, arguing his authority over New City’s budget did not include control over the money. The Second District reversed the trial court’s decision. The attorney general appealed to the Supreme Court, which agreed to hear the case.

Supreme Court Analyzed Recovery Law
R.C. 9.39 states, “All public officials are liable for all public money received or collected by them or their subordinates under color of office.” Justice Donnelly explained the Court examined the history and aspects of the statute in its 2010 Cordray v. Internatl. Preparatory School decision. In Cordray, the Court found the rule “that public officials are liable for public funds they control is firmly entrenched in Ohio law.”

Along with the Cordray decision, Burns argued two attorney general opinions issued in 1993 and 1994 found that under R.C. 9.39, public officials are liable if public moneys come into an official’s possession or custody.

“Though the words ‘received’ and ‘collected’ are not defined in any statutory provision related to R.C. 9.39, we conclude that the attorney general and the court of appeals were correct in determining that both words encompass an element of control,” the majority opinion stated.

The Court wrote  a person cannot collect or receive public money, let alone be liable for misappropriation of the money, without controlling it.

Burns did not control the misappropriated funds, and they were never in his possession, the Court stated. Because Shye was an independent contractor, hired and managed by New City’s board of directors, he was not Burn’s subordinate, the opinion noted. Shye acted independently of Burns when embezzling New City’s funds, the Court concluded.

Law Does Not Require Control of Funds, Dissent Asserted
The Court in the Cordray decision stated “R.C. 9.39 represents a codification of Ohio common law imposing strict liability on public officials for the loss of public funds with which they have been entrusted.” The dissent noted the cases decided under common law and Cordray dealt with situations where “control” was one factor that determined whether an official was liable.

The dissent indicated the law does not require control to trigger liability and  R.C. 9.39 provides for something less than control, namely having “received’ or “collected” the funds. Justice Fischer wrote that “receive” and “collected” have two distinct separate meanings and should not be treated as interchangeable words.

The dissent stated while the legislature did not define the two words, “collected” indicates an active seeking of funds, while “received” is the passive accumulation of funds. Burns played an “absolutely necessary role” in procuring funds for the schools by requesting the grants, and under the law “collected” the funds, the dissent maintained.

A public official who acquires funds for the official’s office, even without physically receiving or controlling the funds after receipt, can be held liable, the dissent concluded.

2020-1078. State ex rel. Yost v. Burns, Slip Opinion No. 2022-Ohio-1326.

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