Wednesday, Jan. 14, 2015
Wells Fargo Bank N.A. v. Brian Horn et al., Case no. 2013-1534
Ninth District Court of Appeals (Lorain County)
Hunter T. Hillenmeyer v. City of Cleveland Board of Review and Nassim Lynch, Cleveland Tax Administrator, Case no. 2014-0235
Ohio Board of Tax Appeals
Jeffrey B. Saturday and Karen R. Saturday v. City of Cleveland Board of Review and Nassim Lynch, Cleveland Tax Administrator, Case no. 2014-0292
Ohio Board of Tax Appeals
Disciplinary Counsel v. Anthony Calabrese III, Case no. 2014-1390
Cuyahoga County
What Documents Must Be Attached to Complaint to Prove Standing?
Wells Fargo Bank N.A. v. Brian Horn et al., Case no. 2013-1534
Ninth District Court of Appeals (Lorain County)
ISSUE: Is a plaintiff required to attach to a complaint all evidence needed to show standing?
BACKGROUND:
In November 1993, Brian and Carol Horn took out a loan with Norwest Mortgage to purchase property in Columbia Township near Cincinnati. Wells Fargo filed a foreclosure action on the property in April 2010.
Wells Fargo maintained that Norwest changed its name in 2000 to Wells Fargo Home Mortgage, which merged with Wells Fargo in October 2004. Mr. Horn claimed that Wells Fargo may not have the right to file this lawsuit because it wasn’t the holder of the promissory note and mortgage on the property.
A magistrate recommended that Wells Fargo be granted summary judgment, and the trial court agreed and issued a foreclosure order.
Mr. Horn appealed to the Ninth District Court of Appeals, which reversed the trial court’s decision and ordered the case to be dismissed. The appeals court ruled that Wells Fargo had not proven that it had standing (the right to file the suit) under Fed. Home Loan Mtge. Corp. v. Schwartzwald, a 2012 Ohio Supreme Court decision.
Wells Fargo appealed to the Ohio Supreme Court, which agreed to hear the case.
The Mortgage Lender’s Position
Attorneys for Wells Fargo contend that the mortgage lender in Schwartzwald didn’t include exhibits substantiating its standing with its complaint and didn’t provide any evidence that it had standing as of the date of the filing. Wells Fargo’s attorneys argue that nothing in the decision, though, addressed what documents are needed to prove standing or must be attached to a complaint.
They assert that three appeals courts have ruled after Schwartzwald that standing must be shown to have existed at the time the complaint is filed, but proof of standing doesn’t need to be attached to the complaint and can be provided as evidence at trial or in response to a summary judgment motion.
They contend Wells Fargo stated in its complaint that it was the holder of the note and the successor to Norwest, and the lender attached a copy of the promissory note. The lender later provided additional documentation of its proof of standing in its request for summary judgment, they claim.
Wells Fargo’s attorneys maintain that Schwartzwald did not create a requirement that a case be dismissed unless the lender attaches documents showing standing to enforce the note and the mortgage.
They also argue that procedural rules for civil cases don’t require a claim’s dismissal if a required document isn’t attached to a complaint. Instead, the rules provide that a plaintiff must be given a chance to file a more definite statement to prove standing, they claim.
The Homeowner’s Response
Acting as his own attorney, Mr. Horn argues in his brief that the trial court shouldn’t have granted summary judgment and asks the court to uphold the Ninth District’s decision.
He “requests that the courts take his lack of formal law training into consideration when reviewing his case. This case is regarding his home that he has resided for 20 years, and he is committed to full cooperation with the courts in efforts to keep his home.”
Horn later retained lawyers, who conveyed to the court that Mr. Horn’s brief doesn’t address the legal issues under consideration. They requested a new briefing schedule to fully develop the legal arguments in the case; however, the court denied the request.
- Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Wells Fargo Bank, N.A.: Scott King, 937.443.6560
Representing Brian Horn: Andrew Engel, 937.433.4090
Is Cleveland’s Tax on Nonresident Professional Athletes Legal?
Hunter T. Hillenmeyer v. City of Cleveland Board of Review and Nassim Lynch, Cleveland Tax Administrator, Case no. 2014-0235
Ohio Board of Tax Appeals
ISSUES:
- Is using the games-played method to determine a nonresident professional athlete’s taxable income contrary to Ohio law?
- Does Cleveland’s allocation of a nonresident professional athlete’s income using the games-played method violate the due process clause in the U.S. Constitution?
- Does Cleveland’s allocation of a nonresident professional athlete’s income based on the games-played method violate the U.S. Constitution’s commerce clause?
- Under R.C. 718.011(B), are professional athletes treated differently than similarly situated taxpayers in violation of the Ohio Constitution and the equal protection clause of the U.S. Constitution?
BACKGROUND:
Hunter T. Hillenmeyer is a former professional football player for the Chicago Bears. Hillenmeyer signed a standard NFL player contract that defines the terms of his employment and services. For a yearly salary paid out during the regular football season, Hillenmeyer was required to participate in the team’s mini camps, official preseason training camp, practices, and regular and post-season games, among other things.
From 2004 to 2006, Hillenmeyer played a game each year in the city of Cleveland and was subjected to Cleveland’s municipal income tax.
Municipalities in Ohio can impose taxes on wages earned by nonresidents for the services performed within the municipality. However, the Ohio Revised Code prohibits municipalities from taxing a nonresident’s income “for personal services performed by the individual in the municipal corporation on 12 or fewer days in a calendar year,” unless the individual is a professional entertainer or athlete. The state currently levies income tax on the pay of professional athletes active in the state based on “duty days.”
Even though the majority of municipalities use a duty-days method, Cleveland used the games-played method to determine Hillenmeyer’s taxable income. Every season between 2004 and 2006, Hillenmeyer played an exhibition preseason game in Cleveland. Hillenmeyer was in Cleveland for two days each season performing services for the Chicago Bears. The games-played method calculates the games played in Cleveland in proportion to total games played to determine the amount to be taxed. Because Hillenmeyer played one game in Cleveland out of 20 games in 2004 and 2006, Cleveland charged taxes on 1/20 of his income. In 2005, Hillenmeyer played a total of 21 games, so Cleveland imposed income tax on 4.76 percent of his income.
In contrast, the duty-days method compares the days played in Cleveland in proportion to all days of work to determine the taxable income. In 2004, for example, Hillenmeyer performed services for the Chicago Bears a total of 157 days. Hillenmeyer’s taxable income would have been 1.27 percent (2 days in Cleveland in proportion to 157 days for the entire year) if the duty days method had been used instead.
Player Seeks Tax Refund
On December 19, 2007, Hillenmeyer filed an application for a refund of income taxes paid to Cleveland for the tax years 2004, 2005, and 2006, arguing that allocating the income of professional athletes on the basis of games played is illegal. The Cleveland tax administrator denied Hillenmeyer’s request for a refund.
Hillenmeyer then appealed to the City of Cleveland Municipal Board of Review, which also denied a refund. Hillenmeyer appealed next to the Ohio Board of Tax Appeals, which rejected his claims on January 14, 2014.
Hillenmeyer filed an appeal of the administrative agency’s decision to the Ohio Supreme Court.
Professional Athletes Press for Duty-Days Formula when Calculating City Taxes
Attorneys for Hillenmeyer contend that the use of the games-played method treats professional athletes as if they are only paid to play games. Because Cleveland’s method fails to recognize that athletes are compensated for more than games, the attorneys state that this does not correctly apportion players’ salaries for tax purposes.
They also rely on Hume v. Limbach, decided in 1991 by the Ohio Supreme Court and ruling that a baseball player for the Cincinnati Reds was paid for other services like exhibition games and spring training even though he only received payment during the regular season. They point to Hume as evidence that Hillenmeyer was paid for more than playing games.
They also emphasize that courts in other jurisdictions have uniformly rejected the games-played method for allocating income. For example, the attorneys point out that the U.S. Court of Appeals for the Second Circuit held that professional hockey players’ incomes must be allocated on the basis of the number of duty days in Stemkowski v. Comm’r (1982).
They also maintain that the games-played method violates the due process clause of the U.S. Constitution, because it violates the fair apportionment standard. The U.S. Supreme Court requires a two-part test of internal and external consistency to determine whether income is fairly apportioned for tax purposes. While the attorneys note that the games-played method is not internally inconsistent, they argue that it is externally inconsistent because it allocates income to Cleveland that is out of proportion to the services performed in the city and creates a real risk of multiple taxation across cities.
They also contend that the games-played method violates the commerce clause, because it has a discriminatory effect on members of visiting professional sports clubs who travel to Cleveland to compete. They state that Cleveland discriminates by favoring local interests over out-of-state interests, which is prohibited by the commerce clause.
In addition, they insist that the games-played method is a violation of the equal protection clause. They rely on Allegheny Pittsburgh Coal Co. v. County Comm’n of Webster County, decided by the U.S. Supreme Court. In 1989, the court ruled that the equal protection clause of the Fourteenth Amendment “protects the individual from state action which selects him out for discriminatory treatment by subjecting him to taxes not imposed on others of the same class.”
Under R.C. 718.011(B), professional athletes can be taxed by a municipality even if the athlete has performed in the city for less than twelve days of the year. The attorneys argue, however, that this exception violates Section 2, Article 1 of the Ohio Constitution, which is the state equivalent of the Fourteenth Amendment. They argue that taxation must operate equally upon all persons of the same class. They assert that, here, athletes are being singled out, which violates both the Ohio and U.S. constitutions.
Cleveland Defends its Tax Structure
Attorneys for the City of Cleveland Board of Review and Nassim Lynch, Cleveland’s tax administrator, maintain that the other side wrongly relies on Hume because the case concerned the allocation of state income taxes, not municipal taxes.
They assert that the athletes should not be able to make constitutional arguments, because Hillenmeyer appealed to the state Board of Tax Appeals and not a common pleas court. They argue that Hillenmeyer choose the wrong court for his action when he decided not to bring his appeal to the common pleas court, which was more apt to handle constitutional issues.
The attorneys also rely on the U.S. Supreme Court case Allied-Signal, Inc. v. Director, Div of Taxation, decided in 1921. The case allows for any apportionment method to be used so long as it is reasonable, and they emphasize that the games-played method is reasonable and therefore valid.
The attorneys reject Hillenmeyer’s argument that courts have uniformly rejected the games-played method. They contend that case law supports the argument that the games-played method is acceptable and legal.
They emphasize that the rule prohibiting municipalities from taxing nonresidents who are working in a city for 12 days or fewer out of the year does not apply to professional entertainers or athletes. Because the exemption, R.C. 718.011(B), applies to both entertainers and athletes, both groups are treated equally under the law, they assert.
Friend-of-Court Briefs
An amicus curiae brief supporting Hillenmeyer’s position has been submitted by the following organizations:
- Major League Baseball Players Association
- National Basketball League Players Association
- National Football League Players Association
- National Hockey League Players Association
The Ohio Supreme Court requested that the Ohio attorney general file an amicus brief concerning the claim that R.C. 718.011(B) violates equal protections clauses, and the state submitted a brief on July 24, 2014.
- Miriah Lee
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Hunter T. Hillenmeyer: Stephen Kidder, 617.227.7940
Representing City of Cleveland Board of Review and Nassim Lynch, Cleveland tax administrator: Linda Bickerstaff, 216.664.2070
May Cleveland Tax Nonresident Professional Athlete Who Was Never in City?
Jeffrey B. Saturday and Karen R. Saturday v. City of Cleveland Board of Review and Nassim Lynch, Cleveland Tax Administrator, Case no. 2014-0292
Ohio Board of Tax Appeals
ISSUES:
- Is Cleveland’s taxation of nonresident employees who perform no work or services in the city contrary to the city’s ordinances and Ohio law?
- Does Cleveland’s law taxing nonresident employees who perform no work or services in the city violate the U.S. Constitution’s due process and commerce clauses?
- Is using the games-played method to determine a nonresident professional athlete’s taxable income contrary to Ohio law?
- Does Cleveland’s allocation of a nonresident professional athlete’s income using the games-played method violate the due process clause in the U.S. Constitution?
- Does Cleveland’s allocation of a nonresident professional athlete’s income based on the games-played method violate the U.S. Constitution’s commerce clause?
- Under R.C. 718.011(B), are professional athletes treated differently than similarly situated taxpayers in violation of the Ohio Constitution and the equal protection clause of the U.S. Constitution?
BACKGROUND:
In 2008, Jeffrey B. Saturday played professional football for the Indianapolis Colts. Because of a calf strain, Saturday missed four regular season games during the 2008-2009 season. One of the missed games was in Cleveland against the Browns on November 30, 2008. Saturday remained in Indianapolis for rehabilitation treatment for his injury. However, the city of Cleveland required his employer to withhold municipal income taxes from his earnings for the two days the Colts were in Cleveland.
As in Hunter Hillenmeyer’s case (the preceding preview), Cleveland used the games-played method to determine how much of Saturday’s income could be taxed for its purposes. Saturday and his wife, Karen, paid Cleveland taxes on more than 4 percent of his income because the Colts played one of their 21 games in Cleveland that year. Based on the duty-days formula, however, the Saturdays would have paid taxes to Cleveland on only 1.24 percent of the player’s income (2 days out of 161 duty days).
Saturdays File for Refund
On December 18, 2009, the Saturdays applied for a full refund of the taxes they paid to Cleveland in 2008. They contended that the Colts player performed no services in Cleveland in 2008 so the city had no authority to tax his wages. The Cleveland tax administrator rejected their request in January 2011.
They appealed, and the City of Cleveland Municipal Board of Review affirmed the tax administrator’s decision. The Ohio Board of Tax Appeals also denied the refund in a decision issued two weeks after its January 2014 ruling in Hillenmeyer’s case.
The Saturdays filed an administrative agency appeal with the Ohio Supreme Court.
The Player’s Arguments
The Saturdays’ attorneys, who are also representing Hillenmeyer before the court, argue that Cleveland law allows the city to collect income tax on wages earned for work done or services performed within or attributable to the city. Because Saturday never visited Cleveland in 2008, they maintain that none of his wages can be subject to Cleveland’s taxes.
They assert that state law (R.C. 718.011) also requires a nonresident to perform some service within a municipality before the municipality can tax the nonresident.
Because Saturday was never in Cleveland in 2008, the attorneys contend that the city’s ordinances also violate the due process and commerce clauses of the U.S. Constitution. Citing several case decisions, they argue that if a person is taxed but wasn’t physically present in the city, constitutional rights are infringed. In addition, they claim that Saturday received no protection, opportunities, or benefits from Cleveland in 2008.
The attorneys then challenge the legality and the constitutionality of the games-played formula used by Cleveland to tax professional athletes. Those arguments are presented in the Hillenmeyer preview above.
The City’s Position
Attorneys for the City of Cleveland claim Saturday didn’t need to be physically in Cleveland to be required to pay taxes on income earned from that November 2008 game. They assert that the city is authorized to collect taxes on wages attributable to the city and that the tax applies even if the player doesn’t participate in the game because of illness or injury.
Given that Saturday was paid for the Cleveland game even though he didn’t attend, he also must pay taxes to Cleveland for that game, they argue. They point out that Saturday’s W-2 form shows that he paid taxes to the state of Ohio for that game, so those wages are also subject to city taxes.
They counter that physical presence in a location isn’t the only factor considered for deciding whether a person may be taxed in that location. Because physical presence is not required, the cases cited by Saturday don’t support the argument that the city’s tax law violates the federal due process and commerce clauses, Cleveland’s attorneys maintain.
They respond that the city did provide protection and benefits, including a stadium, that allowed the Browns/Colts game to occur. Saturday’s teammates benefitted from the game, and that element establishes sufficient contact to require Saturday to also pay taxes to Cleveland for that game, they argue.
They further assert that the state legislature hasn’t restricted levying municipal income taxes to only those who perform some service within the municipality, but rather only limits those taxes to “qualifying wages.”
In the city’s brief the attorneys also repeat the assertions made in Hillenmeyer’s brief, which are detailed in that preview above.
- Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Jeffrey B. and Karen R. Saturday: Stephen Kidder, 617.227.7940
Representing City of Cleveland Board of Review and Nassim Lynch, Cleveland tax administrator: Linda Bickerstaff, 216.664.2070
Attorney Discipline
Disciplinary Counsel v. Anthony Calabrese III, Case no. 2014-1390
Cuyahoga County
The Board of Professional Conduct has recommended that Cuyahoga County attorney Anthony Calabrese III be disbarred from the practice of law in Ohio for bribing public officials and engaging in other criminal activity.
Calabrese represented Alternative Agencies, a halfway house that operated under the guidance of the Cuyahoga County Common Pleas Court. Calabrese was found to have bribed public officials to help the house gain tax-exempt status for leased property and remain on the county budget. He also engaged in racketeering.
In its report, the disciplinary board stated that in January 2013 Calabrese pled guilty in federal court to 18 counts of bribery, conspiracy, mail fraud, and racketeering violations. He was sentenced to nine years in prison, ordered to pay restitution of $132,041, and forfeited $74,450. Calabrese was then indicted in state court, and he pled guilty to theft, bribery, and engaging in a pattern of corrupt activity. The Ohio Supreme Court suspended Calabrese from the practice of law for an interim period based upon the felony convictions.
On December 20, 2013, the Disciplinary Counsel filed a complaint against Calabrese. A few months later, the complaint was amended to reflect the additional state convictions.
Both Calabrese and the Disciplinary Counsel agreed that Calabrese’s conduct violated multiple Rules of Professional Conduct, including engaging in illegal conduct involving moral turpitude; engaging in acts of fraud, dishonesty, and deceit; and engaging in conduct prejudicial to the administration of justice. The two parties do not agree on the appropriate punishment.
Calabrese objects to the board’s recommendation of disbarment, emphasizing that he’s not a public official, nor did he commit any of his conduct as a public official, so it is unfair to consider public corruption matters. He stresses that he has no prior disciplinary record or any client complaints. He points out that he has begun to make his restitution stemming from his criminal convictions.
The Disciplinary Counsel relies on case law, such as the 2006 Ohio case Disciplinary Counsel v. Phillips, to support disbarment. Counsel asserts that Calabrese’s conduct was much more egregious than that in Phillips and requires disbarment. Like Phillips, Calabrese bribed public officials, but for a 10-year period rather than in one isolated incident. The Disciplinary Counsel argues that Calabrese engaged in multiple instances of impropriety during this period and insists that the court shouldn’t be deterred from disbarring Calabrese simply because he wasn’t a public official.
- Miriah Lee
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing the Office of Disciplinary Counsel: Joseph Caligiuri, 614.461.0256
Representing Anthony Calabrese III, pro se, 330.420.6200 (Elkton federal prison)
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