Musial Offices, Ltd. v. Cnty. of Cuyahoga

• Decision Date: 25 November 2020
• Docket Number: No. 108478,108478
• Citation: 163 N.E.3d 84,2020 Ohio 5426
• Parties: MUSIAL OFFICES, LTD., Plaintiff-Appellee/Cross-Appellant, v. COUNTY OF CUYAHOGA, et al., Defendants-Appellants/Cross-Appellees.
• Court: Ohio Court of Appeals

163 N.E.3d 84

2020 Ohio 5426

MUSIAL OFFICES, LTD., Plaintiff-Appellee/Cross-Appellant,

v.COUNTY OF CUYAHOGA, et al., Defendants-Appellants/Cross-Appellees.

No. 108478

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

RELEASED AND JOURNALIZED: November 25, 2020

Dworken & Bernstein Co., L.P.A., and Patrick J. Perotti, Nicole T. Fiorelli, and James S. Timmerberg, Painesville, Mellino Robenalt L.L.C., and Thomas D. Robenalt, Westlake, for appellee/cross-appellant.

Michael C. O'Malley, Cuyahoga County Prosecuting Attorney, and Charles E. Hannan, Brian R. Gutkoski, and Kenneth M. Rock, Assistant Prosecuting Attorneys; Greg G. Huth, Cuyahoga County Director of Law, and Joseph W. Boatwright, IV, Assistant Director of Law, for appellants/cross-appellees.

JOURNAL ENTRY AND OPINION

ON RECONSIDERATION¹

EILEEN T. GALLAGHER, A.J.:

{¶ 1} Defendants-appellants, Cuyahoga County, Armond Budish, and the Cuyahoga County Board of Revision (collectively "Cuyahoga County" or "the county"), appeal a judgment rendered in favor of plaintiff-appellee, Musial Offices, Ltd. ("Musial"), on behalf of a class of plaintiffs composed of Cuyahoga County property owners (collectively referred to as "Musial" or "plaintiffs"). The county claims the following five errors:

1. The trial court lacked subject matter jurisdiction to hear a case challenging the valuation of real property that was filed in the court of common pleas in an effort to bypass Ohio's comprehensive statutory administrative process that was established to adjudicate and resolve such complaints.

2. The trial court erred by entering judgment against Cuyahoga County, an Ohio political subdivision, on the basis of an alleged claim founded upon unjust enrichment.

3. The trial court erred by denying the appellants' motions to decertify the class after material factual variations among the purported class members emerged after the class was certified.

4. The trial court erred by awarding the plaintiff class prejudgment interest.

5. The trial court erred by ordering the county to pay the judgment to class counsel.

{¶ 2} Musial filed a cross-appeal and claims the following two assignments of error:

1. The trial court erred in denying Musial Offices' equal protection claim in its March 23, 2018 judgment entry.

2. The trial court erred in denying plaintiffs' statutory claim for illegal taxation in its March 23, 2018 judgment entry.

{¶ 3} Finding some merit to the county's appeal as well as Musial's cross-appeal, we affirm the trial court's judgment in part, reverse it in part, and remand the case to the trial court (1) to enter judgment in favor of Musial and the plaintiff class on their illegal taxation claim and (2) to vacate the trial court's award of prejudgment interest.

I. Facts and Procedural History

{¶ 4} Musial brought this class action to recover the overpayment of real property taxes on behalf of itself and members of a certified class of similarly situated property owners. Musial is the owner of real property located in Westlake, Ohio. In 2005, the Cuyahoga County auditor² assigned a tax value of $679,500 to Musial's property for the 2006, 2007, and 2008 tax years. Following the start of the Great Recession in December 2007, real estate values declined, and Musial filed a decrease complaint with the Cuyahoga County Board of Revision for the 2008 tax year. The Westlake Board of Education filed a counterclaim seeking to retain the auditor's valuation.

{¶ 5} Real property tax is based on a percentage of the property's taxable value. Pursuant to R.C. 5713.01(B), the county auditor is required to determine the taxable value of real property through periodic appraisals, known as sexennial and triennial appraisals. R.C. 5713.01(B). The sexennial appraisal, which is conducted every six years, requires the auditor to actually "view and appraise" the property. R.C. 5713.01(B). A triennial appraisal, also referred to as a "statistical update," is conducted three years after the last sexennial appraisal and does not require the auditor to view the property. (Tr. 304, 321.) The triennial appraisal is based on statistical data, such as property sales and construction in the surrounding community. (Tr. 306.) The statistical data is used to generate a "use factor" applied to all properties in a particular area based on an estimation of the average percentage of appreciation or depreciation in value of the properties since the last appraisal. (Tr. 246-248.) By applying the use factor, all parcels within a specific class are reappraised up, down, or without a change, by the same percentage amount.

{¶ 6} A property owner may challenge the auditor's valuation for a current tax year, regardless of whether the auditor reappraised the property that year, by filing a decrease complaint with the county auditor by March 31st of the following tax year. R.C. 5715.19(A)(1)(d). Because real property taxes are billed almost one year behind, a taxpayer is billed in December for the first half of a tax year based on the property's value as of January 1st of that same year. A taxpayer challenging the tax value of property for the 2008 tax year would have until March 31, 2009, to file the complaint.

{¶ 7} If a complaint is filed with the auditor, the auditor is required to present it to the county's board of revision to "hear complaints and revise assessments of real property for taxation." R.C. 5715.01(B). As part of the process, the auditor must notify the local board of education of the taxpayer's complaint within 30 days of March 31, whereupon the board of education, the recipient of a large percentage of the tax collected, may file a counterclaim against the value within 30 days, i.e., by April 30th. R.C. 5715.19(A)(1). Pursuant to R.C. 5715.19(C), the board of revision "shall hear and render its decision on a complaint" within 90 days of the date the property owner's complaint was filed with the board, or, if the board of education asserted its own challenge to the value, within 90 days of the board's counterclaim. Thus, the board of revision is statutorily required to render a decision on a complaint with a counterclaim no later than 120 days after April 30th, i.e., before the end of August. The auditor records property values in a database called Sigma. (Tr. 302.)

{¶ 8} The Cuyahoga County auditor conducted a sexennial reappraisal of properties within the county in 2006, and valued Musial's property at $679,500. When real property values declined in 2008 during the Great Recession, Musial filed a complaint against the valuation of its property in January 2009, for the 2008 tax year.³ Following the board of revision hearing, on January 13, 2010, Musial received a letter of correction from Frank Russo ("Russo"), who served as both the county auditor and secretary of the board of revision. The letter stated that the tax value of Musial's property was reduced to $499,000 for the 2008 tax year. The letter further stated: "If no action is taken, the Board's decision will be reflected in your next tax bill."

{¶ 9} Musial paid the December 2009 tax bill for the first half of 2009 without protest even though the bill reflected the $679,500 valuation of the property. Mark Musial, Musial's principal, testified at trial that he did not believe any further action was necessary to correct the tax bill since the correction letter indicated the correction would be reflected in Musial's next tax bill. However, in June 2010, Musial received a property tax bill for the second half of 2009 that reflected a tax value of $679,500 instead of the board of revision's reduced amount of $499,000. By then, the deadline to appeal the 2009 tax value to the board of revision had expired.

{¶ 10} Meanwhile, the auditor conducted a statistical update for the triennium beginning in 2009, and determined that the reappraised value of Musial's property would be the 2008 value, multiplied by a factor of one. (Tr. 324.) In other words, the tax value of the property for the next triennium (2009, 2010, and 2011) remained the same as the 2008 value. (Tr. 324-325.) However, the auditor did not use the correct 2008 tax value of the property, i.e., $499,000, when he applied the "use factor" for the triennial update because the auditor did not receive the board of revision's decision on Musial's decrease complaint until January 2010, after the triennial update had already been completed. After receiving the board of revision's decision, the auditor updated the correct value of $499,000 of Musial's property for the 2008 tax year in the Sigma database, but never corrected the value for the 2009 tax year, or any subsequent tax years in the triennium.

{¶ 11} After receiving the tax bill for the second half of the 2009 tax year, which still reflected a value of $679,500, Musial sent a letter to the auditor and the board of revision asking them to correct the mistake. Martin Murphy ("Murphy"), the acting administrator of the board of revision, informed Musial that the county recognized there was a problem and was endeavoring to fix it. Meanwhile, the Cleveland Plain Dealer reported stories that numerous property owners had been overcharged in their 2009 property tax bills. When the county failed to correct Musial's tax bill and issue a refund of the amount of overpaid taxes, Musial filed a class action complaint in the Cuyahoga County Common Pleas Court in January 2011. Musial twice amended its complaint and asserted claims for disgorgement, unjust enrichment, due process and equal protection, injunctive relief, the imposition of an illegal tax in violation of R.C. 2723.01, and extraordinary relief in mandamus.

{¶ 12} Musial later moved for class certification. Meanwhile, the county moved to dismiss Musial's second amended complaint, arguing the trial court lacked jurisdiction because Musial failed to exhaust its administrative remedies by appealing the board of revision's decision to the board of tax appeals. The trial court denied the county's motion to dismiss...