Bd. of Edn. v. Bd. of Revision

• Decision Date: 21 December 2005
• Docket Number: No. 2004-1078.,2004-1078.
• Citation: 107 Ohio St.3d 250,2005 Ohio 6434,838 N.E.2d 647
• Parties: BOARD OF EDUCATION OF the CLEVELAND MUNICIPAL SCHOOL DISTRICT, Appellee, v. CUYAHOGA COUNTY BOARD OF REVISION et al., Appellees; Vlaxos, L.L.C., Appellant.
• Court: Ohio Supreme Court

838 N.E.2d 647

107 Ohio St.3d 250

2005-Ohio-6434

BOARD OF EDUCATION OF the CLEVELAND MUNICIPAL SCHOOL DISTRICT, Appellee, v. CUYAHOGA COUNTY BOARD OF REVISION et al., Appellees; Vlaxos, L.L.C., Appellant.

No. 2004-1078.

Supreme Court of Ohio.

Submitted August 23, 2005.

Decided December 21, 2005.

Todd W. Sleggs & Associates, Todd W. Sleggs, and Susan K. French-Scaggs, Cleveland, for appellant.

James H. Hewitt Co., L.P.A., and James H. Hewitt III, Cleveland, for appellee Board of Education of the Cleveland Municipal School District.

PER CURIAM.

{¶ 1} Appellant, Vlaxos, L.L.C. ("Vlaxos"), contends that the price it paid for certain real property was the result of economic duress and, therefore, the sale was not an arm's-length sale. We disagree and, therefore, affirm the decision of the Board of Tax Appeals ("BTA").

{¶ 2} The property involved in this case, located in the Grand Arcade at 408 and 500 West St. Clair Avenue in Cleveland, consists of two condominium parcels, known as units 101 and 102, which house the Greek Isles Restaurant. The property was purchased by Vlaxos in December 2000 for $1,350,000. The Board of Education of the Cleveland Municipal School District ("BOE") filed a real property valuation complaint with the Cuyahoga County Board of Revision ("BOR") contending that as a result of the recent sale, the true value of the property should be increased to $1,350,000 for tax year 2000. Vlaxos filed a countercomplaint contending that the auditor's valuation of $415,000 was the correct value.

{¶ 3} After a hearing, the BOR determined that the valuation should remain at the auditor's valuation of $415,000. The BOE filed two appeals from the BOR's decision to the BTA. Before the appeals were decided by the BTA, they were dismissed upon the authority of Cleveland Elec. Illum. Co. v. Lake Cty. Bd. of Revision, 96 Ohio St.3d 165, 2002-Ohio-4033, 772 N.E.2d 1160, and remanded to the BOR for proper certification. After the actions were properly certified by the BOR, the BOE refiled its two appeals with the BTA. The BTA consolidated the appeals for hearing and decision.

{¶ 4} The parties waived a hearing before the BTA and relied on the testimony and evidence presented to the BOR. At the BOR hearing, the only witness presented by Vlaxos was George Servetas, one of Vlaxos's two members, the other being Nicholas Stavridis. Prior to the sale, Servetas and Stavridis leased the property in question for their Greek Isles Restaurant from West Sixth Associates Limited Partnership. The term of the lease was five years, from April 15, 1993, through April 14, 1998. Under the terms of the lease, the rent escalated until it reached $6,281.33 per month for the time period February 1, 1995, through April 14, 1998.

{¶ 5} Although the lease contained a provision for renewal for an additional five years, there is no evidence that any attempt was made to exercise that provision. At some time after the expiration of the lease, the lessor said it would raise the rent to $16,000 per month. In the alternative, the lessor said it would sell the property for $1,800,000. The parties apparently carried on negotiations from sometime after the expiration of the original lease on April 14, 1998, until December 2000, when the price had been negotiated down to $1,350,000.

{¶ 6} Servetas testified that when they initially moved into the space in 1992, they spent over $725,000 to finish the space and equip the restaurant, and if they were forced to move, they probably could not take more than $50,000 to $60,000 of the improvements.

{¶ 7} The $1,350,000 purchase price was primarily financed by two notes from the Metropolitan Bank & Trust Company ("Bank"), both dated December 22, 1999. One note was in the amount of $725,000, and the other was for $580,000. The $725,000 note had an initial interest rate of 8.25 percent for the first five years, after which the interest rate was to be reset until the note matured in January 2011. The other note, in the amount of $580,000, matured on April 1, 2001, and carried an interest rate of prime plus one percent. The remainder of the purchase price apparently was paid in cash. Servetas stated that Vlaxos needed a Small Business Administration ("SBA") loan to purchase the property; however, he never identified which loan was the SBA loan.

{¶ 8} Each of the Bank's notes was secured by an open-end mortgage and security agreement covering the real and personal property located on the property. In addition, Stavridis and Servetas each personally guaranteed payment of the loans; however, neither Stavridis nor Servetas pledged any personal assets for the loans. Contrary to Servetas's testimony, there is no evidence that either of their spouses signed any note or guaranty.

{¶ 9} After obtaining title to the property, Vlaxos leased it to Stavserv, Inc., d.b.a. Greek Isles Restaurant, for five years at an initial rental rate of $165,600 per year, payable in monthly installments. The rental rate could be adjusted during the term to reflect changes in the costs of financing.

{¶ 10} The BTA determined that the purchase was not the result of economic duress and that the purchase price, $1,350,000, was the best evidence of value.

{¶ 11} The cause is before this court on an appeal as of right.

{¶ 12} Because the parties waived a hearing before the BTA, the only testimony and evidence in this matter is that presented to the BOR. As the appellant at the BTA, and the party asserting that the valuation determined by the board of revision should be increased, the BOE bore the burden of proving that the value it alleged should be the true value. The BOE met that burden by introducing documents establishing that the property sold in December 2000 for $1,350,000. Columbus Bd. of Edn. v. Franklin Cty. Bd. of Revision (1996), 76 Ohio St.3d 13, 16, 665 N.E.2d 1098. This court has held that when property has been the subject of a recent arm's-length sale between a willing buyer and a willing seller, the sale price of the property shall be the true value for taxation purposes. Berea City School Dist. Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 106 Ohio St.3d 269, 2005-Ohio-4979, 834 N.E.2d 782.

{¶ 13} Although the presumption exists that the sale price is the best evidence of true value, that presumption may be rebutted where the sale is not an arm's-length sale. Lakeside Ave. Ltd. Partnership v. Cuyahoga Cty. Bd. of Revision (1996), 75 Ohio St.3d 540, 544, 664 N.E.2d 913. If the presumption that the sale price was the result of an arm's-length transaction is successfully rebutted, then the sale price may not be the best evidence of true value, and a review of independent appraisals based upon other factors may become appropriate. Pingue v. Franklin Cty. Bd. of Revision (1999), 87 Ohio St.3d 62, 64, 717 N.E.2d 293.

{¶ 14} In its first two propositions of law, Vlaxos contends that its purchase was economically coerced and, therefore, was not an arm's-length transaction. In Walters v. Knox Cty. Bd. of Revision (1989), 47 Ohio St.3d 23, 546 N.E.2d 932, syllabus, we held that "[a]n arm's-length sale is characterized by these elements: it is voluntary, i.e., without compulsion or duress; it generally takes place in an open market; and the parties act in their own self-interest."

{¶ 15} Thus, it became Vlaxos's burden to rebut the presumption that the sale price represented true value. This court discussed the concept of rebuttable presumptions in Myocare Nursing Home, Inc. v. Fifth Third Bank, 98 Ohio St.3d 545, 2003-Ohio-2287, 787 N.E.2d 1217, stating that "where a rebuttable presumption exists, a party challenging the presumed fact must produce evidence of a nature that counterbalances the presumption or leaves the case in equipoise. Only upon the production of sufficient rebutting evidence does the presumption disappear." Id. at ¶ 35.

{¶ 16} Vlaxos contends that its purchase was made under economic coercion because the landlord threatened to increase the rent if it did not purchase the property, and if it moved to another location, much of the restaurant equipment that was installed on the property would have to be left behind.

{¶ 17} In Lakeside, the facts established that the purchase in question was made as the result of economic coercion, and therefore the sale was not an arm's-length sale, and the sale price might not represent the true value of the property. As a result, we reversed the decision of the BTA as unlawful and unreasonable. The purchase in Lakeside was not voluntary, because the purchaser never had any real choice, but was compelled to purchase the property at the price that had been set by the seller or face a "swift and sure corporate death." Id., 75 Ohio St.3d at 549, 664 N.E.2d 913.

{¶ 18} Vlaxos states that "[t]he facts of this case closely mirror those of the Lakeside case * * *." However, a review of the facts shows that the evidence in this case does not demonstrate the economic compulsion found in Lakeside. The sale price in Lakeside was not subject to negotiation. Here, Servetas testified that he negotiated the price down from $1,800,000 to $1,350,000. In Lakeside, the buyer's primary asset-based lender refused to finance the purchase and prohibited the company using the property (Triton) from applying its cash or working capital to...