State ex rel. Ohio Attorney Gen. v. Peterson

• Decision Date: 18 November 2021
• Docket Number: 110386,s. 110361
• Citation: 182 N.E.3d 41
• Parties: STATE EX REL., OHIO ATTORNEY GENERAL, Plaintiff-Appellant/Cross-Appellee, v. Rolando PETERSON, et al., Defendants-Appellees/Cross-Appellants.
• Court: Ohio Court of Appeals

182 N.E.3d 41

STATE EX REL., OHIO ATTORNEY GENERAL, Plaintiff-Appellant/Cross-Appellee,

v.Rolando PETERSON, et al., Defendants-Appellees/Cross-Appellants.

Nos. 110361

110386

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

RELEASED AND JOURNALIZED: November 18, 2021

David Yost, Ohio Attorney General, and Todd R. Marti and Ashley A. Barbone, Assistant Attorneys General, for appellant/cross-appellee.

Taft Stettinius & Hollister LLP, James D. Abrams, Columbus, and William A. Doyle, Cleveland, for appellee/cross-appellant.

JOURNAL ENTRY AND OPINION

MARY J. BOYLE, A.J.:

{¶ 1} Plaintiff-appellant/cross-appellee, the Ohio attorney general on behalf of the state, appeals from the trial court's order granting summary judgment in favor of defendant-appellee/cross-appellant, Phyllis Bixler. The state raises two assignments of error for our review:

1. The [t]rial [c]ourt erred in concluding that liability under R.C. 9.39 is a penalty within the meaning of R.C. 2305.11. * * *

2. The [t]rial [c]ourt erred in applying R.C. 2305.11, a generally worded statute of limitations, to the [s]tate in contravention of State v. Sullivan , 38 Ohio St.3d 137, 527 N.E.2d 798 (1988) and State ex rel. Petro v. Pure Tech Sys. , 8th Dist. Cuyahoga No. 101447, 2015-Ohio-1638 . * * *

{¶ 2} Bixler also cross-appeals from the order, raising one cross-assignment of error for our review:

1. The trial court erred in declining to grant summary judgment to [Bixler] on the basis of [Bixler]’s laches.

{¶ 3} We find merit to the state's two assignments of error. Accordingly, we find that the trial court erred in granting Bixler's summary judgment motion, and we remand for further proceedings consistent with this opinion.

I. Procedural History and Factual Background

{¶ 4} In April 2019, the state filed a complaint against Bixler and 14 other defendants who were involved in the operations of the Cleveland Academy of Scholarship, Technology, and Leadership Enterprise ("CASTLE"), a community school organized under R.C. Chapter 3314. The state alleged that a special state audit covering the period July 1, 2004, through June 30, 2010, found that many of the defendants had used CASTLE's public funds for their own benefit. The state brought a claim to reduce the audit's findings to a judgment pursuant to R.C. 117.28, 117.30, and 117.36. The state also brought a claim for public official strict liability pursuant to R.C. 9.39.

{¶ 5} The state's only claim against Bixler was for public official strict liability under R.C. 9.39. The state alleged that Bixler was CASTLE's treasurer from February 2005, to March 2008, that she was involved with CASTLE's collection of federal grant funding, and that, upon information and belief, Bixler signed checks drawn on the accounts that received CASTLE's public funds. The state alleged that Bixler is therefore strictly liable for the funds that were misappropriated while she was CASTLE's treasurer, which totaled $757,213.31. However, in discovery responses after filing the complaint, the state corrected its facts and explained that Bixler was CASTLE's treasurer from July 2004, to June 2006, that the $757,213.31 demand "is not accurate," and that the "correct figure is $340,531.67, plus costs and interest[.]" Bixler filed an answer to the complaint, raising as affirmative defenses that the doctrine of laches and the statute of limitations barred the state's claim against her.

{¶ 6} In May 2020, Bixler filed a motion for summary judgment. She argued that (1) the one-year statute of limitations under R.C. 2305.11(A) for actions brought upon a penal statute barred the state's claim, (2) the doctrine of laches applied, and (3) liability under R.C. 9.39 would violate her due process rights because she had no opportunity to participate in the special audit. The state filed an opposition.

{¶ 7} The special audit report, attached to the state's complaint and Bixler's summary judgment motion, states that CASTLE was a community school in Cleveland that was created in 2004. The report provides that in March 2010, CASTLE's legal counsel wrote a letter to the state auditor requesting that the auditor investigate certain transactions between CASTLE and companies allegedly owned by several CASTLE board members. The report continues that a special task force of the state auditor initiated an investigation into CASTLE's payments to certain vendors and any unusual activity in CASTLE's bank accounts for the period July 2004 through June 2010. The state auditor issued the special audit report almost three years later in April 2013. The report shows that the special task force found numerous payments without supporting documentation to vendors affiliated with CASTLE board members who had not disclosed their financial interests. It also found that many financial transactions were not recorded in CASTLE's ledgers, that CASTLE had not complied with record retention laws, and that CASTLE's board had failed to oversee CASTLE's expenditures. The special audit report included 18 "findings for recovery for public money illegally expended," pursuant to R.C. 117.28, against multiple individuals and entities involved in CASTLE's management for a total of $1,352,501.

{¶ 8} The state attached to its complaint a report from the Ohio State Board of Education recommending that one of the individuals named in the audit have her substitute teaching license revoked. The report summarized the special audit report and noted that the state charged many of the individuals identified in the report in a 32-count indictment that included theft, money laundering, and having an unlawful interest in a public contract.

{¶ 9} Bixler attached to her summary judgment motion an affidavit by her son, who averred that the company Phyllis Bixler Treasurer Consultants was CASTLE's treasurer for the 2004-2005 and 2005-2006 academic terms. He explained that Bixler was the company's licensed treasurer and he was its assistant treasurer. He averred that the company maintained all required documents to support every transaction from a CASTLE account in accord with best accounting practices. He stated that when the company's contract with CASTLE expired after the 2005-2006 school year, Bixler and her company "had no involvement with anything related to CASTLE" until the state brought this case. He averred that Bixler was 86 years old at the time of filing the summary judgment motion and that she lived in a nursing home and suffered from "bouts of memory loss." He explained that Bixler executed a limited power of attorney declaring him as her attorney-in-fact for purposes of this litigation.

{¶ 10} For the 2004-2005 academic year, a 2006 state auditor report attached to Bixler's summary judgment motion provides that the state auditor found "no instances of noncompliance." For the 2005-2006 academic year, Bixler's son averred that he took copies of the financial records for the year to the state auditor's office, which verified that the records were proper and complete. Another audit report attached to Bixler's summary judgment motion shows that two years later, in 2008, an independent accounting firm audited CASTLE's financial records for the 2005-2006 academic year. The report states that the firm could not express an opinion on the financial statements for that year because it was unable to "obtain sufficient documentation[.]"

{¶ 11} Bixler's son also averred that nobody from the state auditor's office contacted Bixler or her company during the special audit investigation initiated in 2010, and they did not participate in the investigation. He further stated that neither Bixler nor her company was named in the special audit report or in any findings for recovery.

{¶ 12} After full briefing on Bixler's summary judgment motion, the trial court granted her motion with a detailed opinion. The trial court found that R.C. 9.39 is a penal statute subject to a one-year statute of limitations pursuant to R.C. 2305.11(A), and that the state's claim was therefore time barred. The trial court rejected Bixler's other arguments and included in its judgment entry the Civ.R. 54(B) certification that there is no just reason for delay.

{¶ 13} The state timely appealed from this judgment, and Bixler timely cross-appealed.

II. Penalty

{¶ 14} In its first assignment of error, the state argues that its claim against Bixler is timely because R.C. 9.39 does not impose a penalty and therefore does not trigger R.C. 2305.11(A) ’s one-year statute of limitations. The state presents four reasons why R.C. 9.39 does not impose a penalty: (1) it imposes strict liability instead of punishment for wrongdoing; (2) its purpose is to compensate the public from the loss of its funds; (3) it is not a penal statute simply because it acts as a deterrent for wrongdoing; and (4) we should resolve any ambiguity by construing R.C. 9.39 in favor of protecting public funds.

{¶ 15} We review a trial court's judgment granting a motion for summary judgment de novo. Citizens Bank, N.A. v. Richer , 8th Dist. Cuyahoga No. 107744, 2019-Ohio-2740, 2019 WL 2871635, ¶ 28. Thus, we independently "examine the evidence to determine if as a matter of law no genuine issues exist for trial." Brewer v. Cleveland Bd. of Edn. , 122 Ohio App.3d 378, 383, 701 N.E.2d 1023 (8th Dist.1997). We review the trial court's order without giving any deference to the trial court. Citizens Bank at ¶ 28. "On appeal, just as the trial court must do, we must consider all facts and inferences drawn in a light most favorable to the nonmoving party." Glemaud v. MetroHealth Sys. , 8th Dist. Cuyahoga No. 106148, 2018-Ohio-4024, 2018 WL 4846666, ¶ 50.

{¶ 16} Pursuant to Civ.R. 56(C), summary judgment is proper where (1) "there is no genuine issue as to any material fact," (2) "the moving party is entitled to judgment as a matter of law," and (3) "reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is...