Tuesday, Jan. 10, 2023
Mary Ann Diller v. Phyllis Diller, co-executor, and Linda Pennucci et al., Case No. 2022-0058
Third District Court of Appeals (Mercer County)
State of Ohio ex rel. US Bank Trust, Natl. Assn. v. Cuyahoga County; State of Ohio ex rel. US Bank Trust, Natl. Assn. v. Lucas County Board of Commissioners; State of Ohio ex. rel. US Bank Trust, Natl. Assn. v. Summit County, Case Nos. 2021-1090, 2021-1091, and 2021-1181
Sixth, Eighth, and Ninth District Courts of Appeals (Lucas, Cuyahoga, and Summit counties)
Highland Tavern LLC et al. v. Michael DeWine, governor of the State of Ohio et al., Case No. 2022-0014
Tenth District Court of Appeals (Franklin County)
Did 2012 Law Change Inheritance to Descendants of Those Named in Wills?
Mary Ann Diller v. Phyllis Diller, co-executor, and Linda Pennucci et al., Case No. 2022-0058
Third District Court of Appeals (Mercer County)
ISSUE: Did a 2012 rewrite of the Ohio “anti-lapse” statute eliminate a “primary devise” from the definition of “devise,” and limit the ability of descendants of those named in a will to inherit.
BACKGROUND:
In 1974, Theodore Penno became owner of a 64-acre farm in Mercer County. He farmed the land with his brother, John, and John’s son, David Penno. In 1998, Theodore Penno created a will, which stated: “I hereby give, devise, and bequeath my farm located in Butler Township, Mercer County, Ohio, and any interest that I may have in any farm chattel property to my brother, JOHN PENNO.” The next item in his will stated that whatever was left after the payments of his debts and expenses was to be equally divided by his brother John and his sister, Mary Ann Diller.
Before Theodore Penno died, he and his brother retired from farming. David rented the property from his uncle and took over all the farming of the land.
In 2016, John died. In 2019, Theodore died without a spouse or children. His closest surviving relatives were his sister, Mary Ann; her daughter Phyllis Diller; and John’s children David Penno and Linda Pennucci.
Family Disputes Inheritance From Will
In 2019, Mary Ann asked the Mercer County Probate Court to declare that her brother’s estate be equally divided between her and John’s children. She argued that because John died before Theodore died, the farm could not be left to John. That meant the property would be divided equally between her and John’s descendants. She asked the court to declare that she was entitled to half of all of Theodore’s property, and that David and Linda were entitled to split John’s half, giving them each one-quarter of the property.
David and Linda objected. They argued that under the “anti-lapse” law, R.C. 2107.52(B)(2), the gift to John was still valid after his death. Since Theodore willed his farm to his brother, they were entitled to the farm property and did not have to split ownership of it with Mary Ann.
The trial court agreed, describing Theodore’s will as containing a typical “primary devise” by stating he was giving the farm to his brother without specifying any other conditions as to what should happen to the property if John died before him. The trial court ruled that the anti-lapse law protects the descendants of someone named in a primary devise, and the property passed to David and Linda as if John received the property and passed it on to them.
Diller appealed the decision to the Third District Court of Appeals. The Third District reversed the trial court, finding the amended version of the anti-lapse law enacted in 2012 no longer protected a primary devise. The Third District questioned whether lawmakers intended to eliminate protection for the vast majority of devises in Ohio wills by removing primary devises, but ruled it must follow what the legislature wrote.
David and Linda appealed to the Supreme Court of Ohio, which agreed to hear the case.
New Definition Unintentional, Leads to Absurd Results, Descendants Argue
Under Ohio common law, when a beneficiary named in a will dies before the testator who made the will, then the gift to the beneficiary lapses. The lapsed gift then falls into a residuary clause such as the one Theodore Penno created, which directed that his property be split by his brother and sister, or their descendants, equally.
In 1953, Ohio followed other states and passed an anti-lapse law. That law changed common law and retained the gift to a beneficiary who died before a testator. The beneficiary’s descendants would then receive the gift as a “substitute gift.”
In 1998, the Supreme Court ruled the state’s anti-lapse law applied to wills, but not to trusts. In 2012, the General Assembly created a new state law that applied the anti-lapse rule to both wills and trusts. In doing so, lawmakers updated the provision of probate law using model language contained in the Uniform Probate Code.
David and Linda noted that the Uniform Probate Code stated that the term “devise” “includes an alternative devise, a devise in the form of a class gift, and an exercise of a power of appointment.” In R.C. 2107.52(A)(3), lawmakers substituted the words “means” for “includes.”
The Third District agreed with Mary Ann’s argument that by using the word “means,” only an alternative devise, a devise in the form of a class gift, and an exercise of a power of appointment are “devises” covered by the anti-lapse law. Because Theodore’s gift to John was a primary devise, it is no longer covered by the anti-lapse law, and the gift to John expired when he died, the court concluded.
David and Linda argued that while, on its face, limiting the definition of devise to only include the three types is unambiguous and logical, but its application to the rest of the law on wills in Chapter R.C. 2107 isn’t. They maintain the chapter uses the word “devise” in ways that indicate it still applies to primary devises. By not revising other sections of the chapter, the language indicates the General Assembly intended to follow the lead of the Uniform Probate Code and expand the definition of devise to include three types of lesser-known devises along with the vastly used primary devise.
The descendants maintain the legislature never intended to make such a significant change to the anti-lapse law and that applying the limited definition of devise leads to absurd results. They ask the Court to retain the probate court’s ruling that they inherited their uncle’s farm.
Gift Lapsed, Farm Property Should Be Split, Sister Asserts
Theodore’s nieces were named co-executors of Penno’s will. To file her lawsuit, Diller had to name both her daughter and niece in the complaint. However, both Mary Ann and Phyllis appealed the Third District’s ruling. Each filed a separate merit brief, making the similar arguments that Mary Ann is entitled to half the farm.
Mary Ann noted that Ohio and several other states adopted revisions to the anti-lapse law using the Uniform Probate Code. Other states also elected not to use the word “includes.” She maintains the legislatures in those states that used “means” instead of “includes” intentionally meant to limit the devises that pass on to descendants. The sister maintains that Ohio narrowed the law, and the anti-lapse statute now applies to a small class of descendants. This change is meant to prompt those drafting wills to be more specific about what happens to the property if the beneficiary dies first, she asserts.
The sister echoes the Third District ruling and noted it is not the role of the courts to rewrite state law, even if they sense the legislature made a mistake. The courts are to apply the law as written, and it is the sole responsibility of lawmakers to revise the anti-lapse law, she concluded.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Linda Pennucci and David Penno: Ashley Doty, 419.228.5319
Representing Mary Ann Diller: Paul Howell, 419.678.7111
Representing Phyllis Diller: John Willamowski, 419.586.6886
Must Counties Pay Property Owners Fair Market Value of Homes Transferred to Land Banks?
State of Ohio ex rel. US Bank Trust, Natl. Assn. v. Cuyahoga County; State of Ohio ex rel. US Bank Trust, Natl. Assn. v. Lucas County Board of Commissioners; State of Ohio ex. rel. US Bank Trust, Natl. Assn. v. Summit County, Case Nos. 2021-1090, 2021-1091, and 2021-1181
Sixth, Eighth, and Ninth District Courts of Appeals (Lucas, Cuyahoga, and Summit counties)
ISSUES:
- Has a county unconstitutionally taken a property when it retains the value of a property above the amount owed for delinquent taxes, penalties, and interests in a tax foreclosure proceeding?
- Can a taxpayer file a writ of mandamus to pursue compensation for a property transferred to a county land bank for the amount of the property’s value above the amount owed for delinquent taxes?
OVERVIEW:
The Supreme Court of Ohio will hear oral arguments regarding the claims of US Bank and three counties in which property was transferred to a county land bank because they owed back taxes. The Supreme Court has consolidated the oral arguments in three cases on this topic. In the cases from Cuyahoga and Lucas counties, US Bank held a mortgage on a property that was transferred to a county land bank for failure to pay delinquent taxes. In the Summit County case, the property transferred to the land bank was owned by US Bank. The bank makes similar legal arguments in all three cases, as do the counties.
BACKGROUND:
State lawmakers authorized municipalities and counties to create “land reutilization programs” to address abandoned properties within their boundaries. To assist local governments, the state allowed for “county land banks,” which are non-profit corporations operated under the direction of county elected officials.
In 2006, the legislature approved an expedited tax foreclosure process that counties could use to address the collection of delinquent taxes for abandoned property. Instead of using the traditional method where foreclosed property is sold at auction by the sheriff, the expedited process allows the county treasurer to request a county board of revision to foreclose on the property. Under the expedited procedure, property owners are notified, given an opportunity to pay the back taxes, and told they can contest the foreclosure action in court. If the owners don’t reclaim the property, ownership of the foreclosed property is transferred to the county land bank. Because the property isn’t sold, no funds are raised from the transfer. The county waives its right to collect the delinquent taxes, and the land bank owns the property free and clear of any tax liens or other interests in the property.
In 2017, Summit County foreclosed on a home in Akron. At the time, US Bank owned the property and owed $4,020 in delinquent taxes. The county determined the fair market property value of land was $48,000. US Bank did not respond to notices of the foreclosure or participate in the expedited process. Ownership of the land was transferred to the county land bank.
That same year in Cuyahoga County, the county foreclosed on a Cleveland residence valued at $22,300 and owing $5,722 in property taxes. One mortgage company held a mortgage on the property at the time the county announced it was foreclosing. Before the board of revision conducted a hearing, the mortgage was assigned to US Bank. Neither lender participated in the foreclosure process, and the property was transferred to the county land bank.
In late 2016, Lucas County used the expedited process to foreclose on a Toledo home, where $7,267 in delinquent taxes was owed on a home valued at $38,100. The mortgage was held by the Federal Home Loan Mortgage Corporation. The lender didn’t participate in the proceedings, and the land was transferred to the county land bank. In 2018, US Bank received an assignment of the mortgage.
Bank Seeks Compensation for Property
In 2021, US Bank filed writs of mandamus in the three counties, seeking to initiate appropriations proceedings. The bank argued that the counties engaged in a “taking” of the property and that they were entitled to reimbursement for the amount of equity in each property that was above the amount owed in taxes, interest, and penalties. The bank argued that had the properties been sold in the traditional fashion by the county sheriff, any funds collected by the sale above the amount owed to the county would be returned to the property owners. Instead of providing any cash to the property owner, the land bank received the property and all the equity in property without paying for it, the bank maintained.
Courts in all three counties rejected the lawsuits. US Bank appealed to the Sixth, Eighth, and Ninth District courts of appeals, which all affirmed the lower court decisions.
The bank appealed to the Supreme Court, which agreed to hear the case.
Transfer to Land Bank Is Unconstitutional Taking of Property, Bank Asserts
The bank argues that under the U.S. and Ohio constitutions, if the government takes private property for public use, then the property owner is entitled to “just” compensation. The bank doesn’t dispute that taxes were delinquent on the properties or that state law granted the counties the right to use the expedited procedure to transfer the land to the land bank. The bank maintains that once the government took possession, it was only entitled to the value of the land equal to the tax money owed. Any value in the land above that amount constitutes “surplus value,” and is due back to the property owner, the bank maintains.
In these cases, the fair market values of the properties far exceeded what was owed in property taxes, the bank states. The bank owned the property in Summit County and has a right to reimbursement from the county, it maintains. The proper procedure to recoup money when the government takes the property is to initiate an appropriations proceeding in common pleas court. The method to launch the proceeding is through a writ of mandamus, the bank explains. A mortgage on a property is protected by the “takings” provisions in the federal and state constitutions, the bank asserts. Because it had valid mortgages on the properties that Cuyahoga and Lucas counties transferred to the land bank, it is entitled to receive the value of those properties and can initiate appropriations proceedings, US Bank asserts.
Writs Are Only Way to Raise Issue With County, Bank Argues
In the three cases, the lower courts ruled that US Bank didn’t meet the requirements to seeks writs of mandamus in 2021. One of the requirements to seek a writ is that the bank has “no adequate remedy in the ordinary course of law.” The courts noted that the expedited foreclosure process has provisions that would have allowed the bank to contest the transfer of the properties to the land banks, but the bank did not take advantage of those.
The bank maintains the provisions in the law are limited to claims regarding the delinquent taxes, which it didn’t dispute were owed. The bank also asserts the challenges allowed by law applied to the time when the land was owned by either US Bank or the prior owner whose interests the bank acquired. The bank maintains it couldn’t seek reimbursement for the taking of its property until ownership of the land was taken by the government. Challenges to the expedited process are disallowed once the property has been transferred to the land bank, the bank asserts, which means it had no adequate remedy. Because it couldn’t challenge the taking in 2017, it was authorized to seek writs in 2021 to recoup the value of the transferred property, the bank concludes.
Bank Has No Right to Payment, Counties Assert
The counties raise several objections to US Banks’ claims, including that acquiring the land for the nonpayment of delinquent taxes is not a taking under the federal or state constitutions. They argue that the U.S. Supreme Court has ruled that a takings claim can’t be based on alleged loss of property caused by a tax foreclosure proceeding. The banks or the prior property owners failed to pay taxes, and there is no constitutionally protected right to recover the alleged difference between the fair market value and the taxes due, the counties assert.
The counties maintain that payment for takings pertains to the government’s use of eminent domain, in which private property is acquired for public use. The counties did not acquire the bank’s abandoned properties through eminent domain, but under a state-authorized procedure to collect unpaid taxes. Because the land was transferred for nonpayment of taxes, the bank cannot institute an appropriations proceeding claiming that the value of its property was taken.
Cuyahoga and Lucas counties argue that US Bank has no interest in the property because at the time of the foreclosure, it didn’t have any ownership rights. It acquired the rights to the Cleveland residence in the middle of the foreclosure process, and did not participate in the proceedings, and the rights to the Toledo residence were acquired a year after the land was transferred to the land banks.
All three counties argue that US Bank, or the property owners at the time, were all notified of the foreclosures and chose not to take any action to pay the taxes, set up a payment plan, or contest the foreclosures. The process, which is contained in R.C. 323.66 to R.C. 323.79, provides several safeguards to ensure property owners have the right to retain their property or contest the transfer, the counties explain. The law includes additional provisions giving property owners a greater opportunity to contest the foreclosure than the traditional process. US Bank could have raised the issues that the transfer was unconstitutional had it participated in the process, the counties note. Because the bank had an adequate remedy in 2017, the appeals courts correctly rejected their requests for writs of mandamus in 2021, the counties conclude.
Friends-of-Court Briefs Submitted
An amicus curiae brief supporting the position of the counties was jointly submitted by the County Auditors Association of Ohio, the County Commissioners Association of Ohio, the County Treasurers Association of Ohio, and the Ohio Mayors Alliance. A separate brief supporting the counties was filed by the Ohio Prosecuting Attorneys Association.
The Buckeye Institute and Pacific Legal Foundation filed a joint amicus brief supporting US Bank.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket (2021-1090, 2021-1091, and 2021-1181).
Contacts
Representing US Bank, National Association: Andrew Engel, 202.935.6990
Representing Cuyahoga County, Lucas County Board of Commissioners, and Summit County: Stephen Funk, 330.376.2700
Was Pandemic Law Limiting Hours of Liquor Sales Constitutional?
Highland Tavern LLC et al. v. Michael DeWine, governor of the State of Ohio et al., Case No. 2022-0014
Tenth District Court of Appeals (Franklin County)
ISSUES:
- Did the governor violate the constitution with an emergency rule during the COVID-19 pandemic ordering liquor permit holders to stop serving alcohol after 10 p.m.?
- Can a liquor permit holder seek a declaratory judgment in common pleas court to have an emergency rule declared unconstitutional while pursuing a separate administrative appeal to have its liquor license reinstated?
BACKGROUND:
In May 2020, Gov. Mike DeWine and health authorities sought to reopen Ohio businesses shut down during the early days of the COVID-19 pandemic. The governor issued a “Dine Safe” order to reopen establishments such as restaurants and bars. As part of the plan, he directed the Liquor Control Commission to enact a temporary rule ending the sales of liquor at 10 p.m.
On July 30, 2020, the commission proposed “Rule 80,” a 120-day rule to stop the carryout sale of beer, wine, and liquor by 10 p.m. and allow consumption of alcohol on the premises until 11 p.m. The state had suspended normal rule-making procedures and adopted the rule the next day.
Highland Square Tavern owned and operated the Highland Tavern in Akron, having purchased the assets and liquor permits eight years earlier. It had not incurred any violation of its liquor permit prior to the imposition of Rule 80.
Highland Tavern didn’t abide by Rule 80 and was cited three times by the Liquor Control Commission within a month for violating the 10 p.m. curfew. In September 2020, the commission revoked Highland Tavern’s liquor permit, and by October, the business closed. It hasn’t reopened.
Bar Contests Permit Revocation and Constitutionality of Rule
Highland Tavern filed an administrative appeal with the commission, contesting the revocation of its permits and questioning the constitutionality of the law. The commission denied the appeal, and under the procedures in state law, the bar was allowed to appeal the commission’s decision to the Franklin County Common Pleas Court.
As the appeal of its permit was being considered, Highland Tavern filed a separate lawsuit, in the same court to have Rule 80 proclaimed unconstitutional under the Ohio “separation of powers” provisions. That case was assigned to a different Franklin County judge.
The Ohio Attorney General’s Office, representing the governor and the commission, sought to have the two cases consolidated into the administrative appeal. The judge hearing the administrative appeal denied the motion and noted that in both cases Highland Tavern was contesting the constitutionality of the rule. The judge found the bar could not bypass the administrative process by filing a separate case directly with the court.
The court rejected Highland Tavern’s administrative appeal, and the bar didn’t appeal the ruling. The other trial court judge dismissed the declaratory judgment case. Highland Tavern appealed that decision to the Tenth District Court of Appeals, which affirmed the trial court’s decision.
The bar appealed to the Supreme Court, which agreed to hear the case.
Law Unconstitutional, Tavern Argues
Highland Tavern notes that the commission has rule-making authority under R.C. 4301.03(I), and the commission argues that rule gives it the authority to shorten the hours of operations. However, the bar holds liquor permits that are authorized by two other statutes, R.C. 4303.16 and R.C. 4303.18. Both of those laws explicitly grant liquor permit holders the right to sell alcohol after 1 a.m., the bar asserts.
The bar argues that because the state laws describe the permits’ operating hours, that indicates an intent by the legislature to set the hours of operation and override any attempt by the commission to curtail those hours. Because Rule 80 conflicts with the hours set by law, the rule is unconstitutional, the tavern asserts. Under the separation of powers, an executive branch agency has no right to enact a rule that conflicts with state law, the bar concludes.
The tavern also has a right to proceed with a declaratory judgment case separately from the administrative appeal, it argues. In the administrative appeal, the agency has no authority to rule on constitutional issues. The tavern has no obligation to raise its constitutional issues only in an administrative appeal, where constitutional issues are not immediately addressed, the business argues. The constitutional issues only get considered if the commission rejects the appeal and the case is brought to common pleas court, it states.
Highland Tavern maintains that it has a right to have the law deemed unconstitutional through the separate declaratory judgment case. If the law is unconstitutional, any revocation of its permit for violating the rule would also be unconstitutional, it argues. A court can consider that type of case without the matter first going through an administrative appeal, the bar concludes.
Bar Can’t Challenge Expired Rule, State Asserts
Because the regulation ended in November 2020 and no longer exists, the tavern can’t challenge it and the case is moot, the attorney general argues. Even if the case isn’t moot, the bar can’t pursue a declaratory judgment when there is a comprehensive administrative process put in place by the legislature to review the actions of administrative agencies, the state maintains.
Because regulating liquor permit activity is assigned to the commission under R.C. 4301.04, permit holders can’t circumvent the administrative process by going directly to a court seeking a declaratory judgment, the attorney general asserts.
The state notes that Highland Tavern contested its permit revocation by appealing to the commission. It began the appeals process and, as part of it, raised the issue of whether Rule 80 was constitutional. Rather than continue with its administrative appeal, Highland abandoned the case when it lost in common pleas court, the state notes. When the bar failed to appeal the administrative proceedings further, it lost all rights to argue to the courts that its permits should be restored, the state asserts.
Along with arguing that the case is over because the rule ended and that the tavern can’t attack the rule outside of the appeals process, the attorney general also maintains the rule was constitutional. The legislature has empowered state agencies to enact regulations consistent with state statutes, and the General Assembly has granted the commission broad rule-making authority, including setting the hours for liquor sales.
The state maintains the laws regarding the types of permits the bar holds describe the hours that a permit holder can operate. But those permits are subject to the laws giving the commission the power to regulate the actual times alcohol can be sold, the attorney general concludes.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Highland Tavern LLC: Warner Mendenhall, 330.535.9160
Representing Michael DeWine, governor of the State of Ohio et al. from the Ohio Attorney General’s Office: Benjamin Flowers, 614.466.8980