Hilliard City Sch. Bd. of Educ. v. Franklin Cnty. Bd. of Revision

• Decision Date: 11 March 2014
• Docket Number: Nos. 2012–1015,2012–1016.,s. 2012–1015
• Citation: 9 N.E.3d 920,139 Ohio St.3d 1
• Parties: HILLIARD CITY SCHOOLS BOARD OF EDUCATION, Appellee, v. FRANKLIN COUNTY BOARD OF REVISION et al., Appellees; U–Store–It, L.P., Appellant. South–Western City Schools Board of Education, Appellee, v. Franklin County Board of Revision et al., Appellees; U–Store–It, L.P., Appellant.
• Court: Ohio Supreme Court

139 Ohio St.3d 1

9 N.E.3d 920

HILLIARD CITY SCHOOLS BOARD OF EDUCATION, Appellee,

v.FRANKLIN COUNTY BOARD OF REVISION et al., Appellees; U–Store–It, L.P., Appellant.

South–Western City Schools Board of Education, Appellee,

v.Franklin County Board of Revision et al., Appellees; U–Store–It, L.P., Appellant.

Nos. 2012–1015, 2012–1016.

Supreme Court of Ohio.

Submitted Oct. 22, 2013.

Decided March 11, 2014.

Rich & Gillis Law Group, L.L.C., Kelley A. Gorry, Mark H. Gillis, Dublin, and Jeffrey H. Rich, for appellees Hilliard City Schools Board of Education and South–Western City Schools Board of Education.

Sleggs, Danzinger & Gill Co., L.P.A., Steven R. Gill, and Todd W. Sleggs, Cleveland, for appellant.

PER CURIAM.

{¶ 1} In these appeals, the owner of several self-storage facilities in Franklin County contests the decision of the Board of Tax Appeals (“BTA”), which adopted the 2006 sale prices as the value of those properties for the 2006 tax year. All the properties at issue were acquired by U–Store–It, L.P., in a bulk purchase in 2006. U–Store–It raises the primary contention that the 2006 sale involved related parties and therefore could not qualify as an arm's-length transaction for purposes of valuing the properties. U–Store–It also contends that the sale prices cannot be used because they include consideration paid for personal property as well as real property.

{¶ 2} We hold that because the record contained affirmative evidence supporting the use of the stated sale prices as the value of the properties for tax-year 2006, and because U–Store–It failed to substantiate its claim that the sale prices should be allocated between real and personal property, the BTA did not act unreasonably or unlawfully in adopting the 2006 sale prices. We therefore affirm the decision of the BTA.

Facts

{¶ 3} We confront two appeals from two BTA decisions. Case No. 2012–1015 addresses the 2006 tax-year value of one self-storage facility located in the Hilliard City School District; case No. 2012–1016 addresses the 2006 tax-year value of two such facilities located in the South–Western City School District.¹ All three self-storage facilities were acquired by U–Store–It in the same transaction, and the issue of their value turns on the resolution of the same legal and factual questions. The appeals were consolidated for argument before the master commissioner, and we now dispose of them with a single decision.

A. The properties at issue were all sold to Jernigan Property Group in 2005, then sold by Jernigan to U–Store–It in 2006

{¶ 4} Twice in a little over a year, the properties at issue were transferred. The first sale occurred in April 2005, in which Jernigan Property Group purchased several facilities; the second sale occurred in August 2006, in which Jernigan Property Group sold nine properties to U–Store–It for more than $44 million. Both times, the sale contracts separately set forth the consideration for each property, and the 2006 sale prices as allocated by the contract were reported as the sale price on the conveyance-fee statements.

{¶ 5} The Hilliard City Schools Board of Education and the South–Western City Schools Board of Education (“school boards” or “school board”) filed complaints in relation to the properties located in their respective districts. Another self-storage facility that was part of the 2006 sale is located in the Reynoldsburg City School District, and the BTA's decision in that case was also appealed to this court. That case has settled, however. 134 Ohio St.3d 1477, 2013-Ohio-770, 984 N.E.2d 22. Nevertheless, the record of that case was incorporated into the records of the cases before us, and we will consult the evidence in that record in reviewing the BTA's decisions.

{¶ 6} The school boards' complaints asked that the 2006 sale prices be applied to the individual properties for the 2006 tax year. The Franklin County Board of Revision (“BOR”) determined that the 2006 sale did not qualify as an arm's-length transaction and therefore adopted the 2005 sale prices for tax-year 2006 instead. The BTA reversed and adopted the 2006 sale prices as the 2006 property values.

{¶ 7} Below is a chart showing the values assigned to the properties at issue here for tax-year 2006, in these proceedings:

BOR value

BTA value

Supreme Court

School

(2005 sale

(2006 sale

Case No.

Address

District

Auditor

price)

price)

2012–1015

5252 Nike Road

Hilliard

3,500,000

4,298,500

4,700,000 ²

2012–1016

5411 W. Broad

South–Western

2,760,000

2,715,000

4,350,000

2012–1016

3300 Southwest Blvd.

South–Western

3,500,000

4,483,500

6,200,000

B. What the evidence shows

1. Evidence pertaining to the arm's-length character of the 2006 sale

{¶ 8} At the November 26, 2007 BOR hearings, U–Store–It's counsel introduced both testimony and documents. The documents included the purchase agreements for the 2005 sale to Jernigan Property Group and the 2006 sale by Jernigan Property Group to U–Store–It, along with closing statements and a copy of a Form 10–Q filed by U–Store–It.

{¶ 9} The Form 10–Q, a filing with the Securities and Exchange Commission (“SEC”) required of U–Store–It Trust as a publicly traded entity listed on the New York Stock Exchange, disclosed that the 2006 sale was in a certain respect a “related-party” transaction. The disclosure points out that the sale contract was entered into between Jernigan Property Group as seller and U–Store–It as buyer on April 3, 2006. Dean Jernigan, who was president of Jernigan Property Group and held “a 20% beneficial interest in one self-storage facility partially owned by Jernigan Property Group and related companies and partnerships,” was appointed president and chief executive officer (“CEO”) of U–Store–It Trust on April 24, 2006. The transaction “was subject to review and final approval by a majority of the independent members of the Company's Board of Trustees.” The 10–Q further noted that “Mr. Jernigan has discontinued all involvement in the day-to-day management or operation of the Jernigan Property Group.”

{¶ 10} U–Store–It relies on the Form 10–Q as establishing that the 2006 sale was not at arm's length, because it was a related-party transaction for SEC reporting purposes.

{¶ 11} Kathleen Weigand, executive vice-president, general counsel, and secretary of U–Store–It Trust, testified. She reiterated the points made in the 10–Q and emphasized the importance of a noncompete clause in the 2006 sale agreement, to which Jernigan personally was made a party.

{¶ 12} In her testimony, Weigand fleshed out the disclosure of the related-party transaction. Weigand added that Jernigan “had an interest” in the Jernigan Property Group, L.L.C. But notable by its absence is any testimony—or any statement in the Form 10–Q itself—that (1) Jernigan had previously owned or acquired an interest in U–Store–It Trust or that (2) Jernigan Property Group and U–Store–It were in any other respect under common ownership.

2. Evidence relating to the value of the properties

{¶ 13} Weigand also testified that in conjunction with the 2006 purchase, U–Store–It did not commission outside appraisals, but did perform underwriting in-house, “placing a value on the properties based on net operating income,” including developing a cap rate and taking into account vacancy loss and cash flow from rents. This in-house underwriting was the basis for the per-property allocated purchase price for each parcel set forth in the 2006 sale.

{¶ 14} Weigand's testimony describes, in essence, an income approach, performed by U–Store–It itself, from which the sale prices for the individual properties were developed. That process also helped persuade the independent trustees of U–Store–It Trust that the deal was fair in the context of Dean Jernigan profiting from the trust's purchase while contemporaneously being hired as the trust's new CEO.

{¶ 15} U–Store–It has also advanced an argument that the sale prices of the facilities at issue include personal property as well as realty. The 2006 sale refers to tangible personal property to be conveyed along with the realty. Attached to the 2006 sale contract is a bill of sale for the personal property, with an extensive list of personalty appended. But the bill of sale contains no indication of the cost or value of any individual items of personal property, nor does the sale contract elsewhere set forth an allocation to personalty. The same can be said of the other separately identified item of personal property: the intangible covenant not to compete.

C. Determinations by the BOR and the BTA

{¶ 16} On May 4, 2009, in the Reynoldsburg case, the BOR eliminated the 2006 sale as an arm's-length transaction. Accordingly,the BOR ordered that the 2005 sale prices be adopted as the value of the properties for tax-years 2005 and 2006.

{¶ 17} In the present cases, which involve the properties in the Hilliard and South–Western school districts, the record contains no deliberation of the BOR, but the determinations issued likewise adopted the 2005 sale prices for tax-year 2006.

{¶ 18} The school boards appealed to the BTA, advocating adoption of the 2006 sale prices. The BTA issued its decisions in these cases on May 15, 2012. The decision in the South–Western City Schools' case was the lead decision, and the decision in the Hilliard City Schools' case adopted the reasoning of the lead decision.

{¶ 19} The BTA presumed the validity of the 2006 sale price for the value of the properties for tax-year 2006. South–Western City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, BTA Nos. 2009–A–1070 and 2009–A–1071, 2012 WL 1869990, *3 (May 15, 2012). The BTA summarized U–Store–It's objections as follows: “[T]he sale in question does not qualify as an arm's-length transaction because it was a bulk sale with allocated prices among many properties between related parties and the sale included items other than real property.” Id.

{¶ 20} With respect to the bulk-sale allocation issues, the BTA relied on FirstCal Indus. 2 Acquisitions,...