Episcopal Retirement Homes, Inc. v. Ohio Dept. of Indus. Relations

• Decision Date: 14 August 1991
• Docket Number: No. 90-1051,90-1051
• Citation: 61 Ohio St.3d 366,575 N.E.2d 134
• Parties: EPISCOPAL RETIREMENT HOMES, INC., Appellee, v. OHIO DEPARTMENT OF INDUSTRIAL RELATIONS et al., Appellants.
• Court: Ohio Supreme Court

Page 366

61 Ohio St.3d 366

575 N.E.2d 134

EPISCOPAL RETIREMENT HOMES, INC., Appellee, v. OHIO DEPARTMENT OF INDUSTRIAL RELATIONS et al., Appellants.

No. 90-1051.

Supreme Court of Ohio.

Submitted March 13, 1991.

Decided Aug. 14, 1991.

SYLLABUS BY THE COURT

Construction projects financed with R.C. Chapter 140 bonds are not "public impr ovements" as defined in R.C. 4115.03(C), and are therefore not subject to the p revailing wage law.

Appellee, Episcopal Retirement Homes, Inc. ("ERH"), is a private, not-for-profit corporation that owns several facilities that provide skilled and intermediate nursing care to the elderly. ERH wanted to upgrade two of its facilities and decided to finance the construction and renovation project with the proceeds of hospital revenue bonds (the "bonds") issued pursuant to R.C. Chapter 140.

R.C. Chapter 140 allows a nonprofit hospital agency, such as ERH, to participate in a nontraditional "leasing" arrangement in order to finance construction and renovation projects. One of the requirements of participation is that the nonprofit hospital agency (ERH) lease its facilities to a public hospital agency, such as a county. Under such an arrangement and pursuant to a lease agreement, ERH agreed to lease its facilities to Hamilton County (the "county"), acting through its agency, the Hamilton County Hospital Commission, for twenty years. The county subleased the facilities back to ERH for twenty years. The twenty-year terms of the lease and sublease were based upon the length of time it would take ERH to repay the bonds.

The lease agreement provides that the county pay rent to ERH in an amount equal to the net proceeds of the issuance and sale of the bonds. In fact, the rental amount for the entire twenty-year term was paid by the underwriter at the closing from the monies it used to purchase the bonds. The underwriter paid this money directly to the trustee for the bondholders. The sublease provided that ERH would pay rent to the county for the leased premises in an amount sufficient to pay debt service (principal and interest payments) on the bonds. Pursuant to the trust indenture between the county and the trustee, the county assigned its right to collect rental payments under the sublease to the trustee. Thus, the county has never received or paid any rent.

According to the guaranty agreement ERH executed, ERH unconditionally guaranteed that it would pay the debt service and redemption premium on the bonds to the trustee. ERH obtained an irrevocable letter of credit in favor of the trustee and granted a first mortgage on and security interest in the leased premises to the trustee and to the bank that issued the letter of credit as further security for the payment of debt service on the bonds.

Under the provisions of R.C. Chapter 140 financings, the county issued $21 million of County of Hamilton, Ohio variable rate hospital facilities revenue refunding and improvement bonds. These bonds were issued pursuant to the trust indenture between the county and the trustee. The net proceeds of the bond issue were used to refinance outstanding debt of ERH, to repay certain monies owed to ERH, to pay the costs associated with issuing the bonds, and to pay a portion of the renovation and construction costs incurred in improving the two facilities, all in accordance with R.C. Chapter 140 provisions.

By letter dated March 4, 1988, the Director of the Ohio Department of Industrial Relations (the "department") informed ERH that the department believed Ohio's prevailing wage law applied to projects financed with R.C. Chapter 140 bonds. Ohio's prevailing wage statutes are applicable when a "public improvement" is constructed by or for a public authority and requires an employer to pay its workers a minimum hourly rate.

ERH sought a declaration that the prevailing wage law did not apply to its current projects or any projects it might finance under R.C. Chapter 140, and filed a motion for a temporary restraining order and a motion for preliminary injunction. Both ERH and the department filed cross-motions for summary judgment. The trial court granted ERH's motion for summary judgment and permanently enjoined the department from enforcing the provisions of the prevailing wage law with regard to the ERH construction and renovation projects funded with R.C. Chapter 140 revenue bonds. The court of appeals affirmed the decision of the trial court, holding that the ERH projects were not public improvements constructed pursuant to a contract with a public authority.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Aronoff, Rosen & Stockdale, Gregory Mohar and David C. Stockdale, Cincinnati, for appellee.

Lee I. Fisher, Atty. Gen., and James G. Neary, Columbus, for appellants.

Bricker & Eckler and Elisabeth A. Squeglia, Columbus, urging affirmance for amicus curiae, Ohio Hosp. Ass'n.

Baker, Baker & Sweterlitsch, Martha J. Sweterlitsch and Douglas A. Baker, Columbus, urging affirmance for amicus curiae, Ass'n of Ohio Philanthropic Homes & Housing for the Aging.

Benesch, Friedlander, Coplan & Aronoff, N. Victor Goodman and Mark D. Tucker, Columbus, urging reversal for amicus curiae, Ohio State Bldg. and Const. Trades Council.

MOYER, Chief Justice.

By its terms, Ohio's prevailing wage law applies to all construction projects that are "public improvements" as defined in R.C. 4115.03(C): " 'Public improvement' includes all buildings, roads, streets, alleys, sewers, ditches, sewage disposal plants, water works, and all other structures or works constructed by a public authority of the state or any political subdivision thereof or by any person who, pursuant to a contract with a public authority, constructs any structure for a public authority of the state or a political subdivision thereof. * * * "

Thus, a project must be constructed "pursuant to a contract with a public authority" and "for a public authority" in order for the prevailing wage statutes to apply. We must determine first whether the lease and sublease between ERH and the Hamilton County Hospital Commission constitute a contract with a public authority, i.e., the county.

The Restatement of the Law 2d, Contracts (1981) 5, Section 1, defines a "contract" as "[a] promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty." In order to declare the existence of a contract, both parties to the contract must consent to its terms (see Columbus, Hocking Valley & Toledo Ry. Co. v. Gaffney [1901], 65 Ohio St. 104, 61 N.E. 152); there must be a meeting of the minds of both parties (see Gaffney, supra ); and the contract must be definite and certain (see James Ward & Co. v. Wick Bros. & Co. [1867], 17 Ohio St. 159).

Although both the lease and the sublease discuss and define the projects, neither document sets forth the plans and specifications necessary for construction. Information regarding the work timetable, monetary remuneration and other items on which both parties must agree prior to construction does not appear in these documents. In fact, Section 3.02 of the sublease authorizes ERH to "enter into such construction contracts * * * as it deems necessary or advisable for any acquisition, installation, equipping, constructing, renovations and conversions relating thereto[.]"

ERH's projects are not being constructed pursuant to the lease or the sublease. These documents are not the animating force for the construction and renovation. They are no more than a mechanism for securing repayment of the bond proceeds. The county had no involvement in the planning or approval of the construction and renovation. ERH negotiated the work details with the contractors, and was solely responsible for overseeing the construction work of the contracts it negotiated. Thus, ERH did not agree to construct its projects "pursuant to a contract with a public authority."

R.C. 4115.03(C) also requires that public improvements be constructed "for a public authority." Construction of a project "for a public authority" necessitates that the public authority receive the benefit of the construction, either through maintaining a possessory or property interest in the completed project or through the use of public funds in the construction of the project.

Simply put, the county does not benefit from the construction and renovation of ERH's projects. Undeniably, ERH's projects serve a public benefit. They provide jobs to county residents and improved health care for the aged. However, benefiting the public and benefiting a public authority are separate and distinct functions.

Under the lease/lease-back arrangement, ERH continues to own, operate and control all its health care facilities. By improving its facilities, ERH enhances their value. ERH, not the county, receives the benefit of the increased value of its property. The fact that ERH seeks to construct and renovate its own health care facilities to better serve the public does not mean that the construction and renovation are "for a public authority."

Furthermore, the county has neither a possessory nor a property interest in the projects. ERH owns the properties. In order to give security for the bonds, ERH leased the properties to the county. The county simultaneously subleased the properties back to ERH. The county then assigned all its interest in the sublease to the trustee. Whatever possessory interest the county may have had for the fleeting moment between the execution of the lease and the sublease was completely extinguished when the county signed the sublease. Although there is a provision in the sublease that gives the county the right to obtain possession should ERH default on the sublease, that right to possession, along with all other rights the county might have exercised under the sublease, was assigned to the trustee by execution of the assignment agreement...