Copley-Fairlawn City School Dist. Bd. of Edn. v. Summit Cty. Bd. of Revision (Slip Opinion) , 147 Ohio St. 3d 503 ( 2016 )

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Copley-Fairlawn City School Dist. Bd. of Edn. v. Summit Cty. Bd. of Revision, Slip Opinion
No. 2016-Ohio-1485.]
NOTICE
This slip opinion is subject to formal revision before it is published in
an advance sheet of the Ohio Official Reports. Readers are requested
to promptly notify the Reporter of Decisions, Supreme Court of Ohio,
65 South Front Street, Columbus, Ohio 43215, of any typographical or
other formal errors in the opinion, in order that corrections may be
made before the opinion is published.
SLIP OPINION NO. 2016-OHIO-1485
COPLEY-FAIRLAWN CITY SCHOOL DISTRICT BOARD OF EDUCATION,
APPELLEE, v. SUMMIT COUNTY BOARD OF REVISION ET AL., APPELLEES; TEAM
RENTALS, L.L.C., APPELLANT.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Copley-Fairlawn City School Dist. Bd. of Edn. v. Summit Cty.
Bd. of Revision, Slip Opinion No. 2016-Ohio-1485.]
Taxation—Real-property valuation—Auditor’s valuation may not serve as default
valuation when owner’s evidence before board of revision negates that
value—When the evidence negates auditor’s valuation, Board of Tax
Appeals must determine a new value if record permits it to do so—Board
of Tax Appeals’ decision reversed and cause remanded.
(No. 2014-0955—Submitted October 13, 2015—Decided April 12, 2016.)
APPEAL from the Board of Tax Appeals, No. 2013-4317.
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SUPREME COURT OF OHIO
Per Curiam.
{¶ 1} This real-property-valuation case concerns the proper valuation for
tax year 2012 of a two-story office building in Summit County. Team Rentals,
L.L.C., the property owner, filed a complaint seeking a reduction of the value
assigned to its property, and the Summit County Board of Revision (“BOR”)
reduced the value from $1,362,930 to $1,125,000 based explicitly on a bank
appraisal presented by Team Rentals at the BOR hearing. The Copley-Fairlawn
City School District Board of Education (“BOE”) then appealed to the Board of
Tax Appeals (“BTA”), and that board reversed the BOR’s valuation and
reinstated the higher valuation determined by the auditor. Team Rentals has
appealed to this court.
{¶ 2} The BTA’s decision relies on the bank appraisal being unsupported
by appraiser testimony and the fact that the appraisal’s opinion of value was
expressed as of June 14, 2011, rather than as of the tax-lien date, January 1, 2012.
BTA No. 2013-4317, 2014 Ohio Tax LEXIS 2958 (May 9, 2014), 3. Finding that
the record lacked competent and probative evidence of value, the BTA reverted to
the value originally assessed by the county auditor.
{¶ 3} In taking that action, however, the BTA misapprehended the
competency of the evidence and ignored the case law that bars the use of the
auditor’s original valuation as a “default value” under the circumstances presented
here. We therefore reverse the decision of the BTA, and we remand for an
independent determination of value based upon all the evidence in the record.
BACKGROUND
{¶ 4} The two-story multitenant office building at issue in this case
consists of three parcels; the property was acquired in 2002 for $1,400,000.
Theodore Klimczak purchased the property and later transferred ownership to
Team Rentals, L.L.C., while continuing to act as the company’s managing
member.
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January Term, 2016
{¶ 5} For tax year 2012, the Summit County fiscal officer assigned a total
value of $1,362,930 to the three parcels comprising the property. Klimczak, as
managing member of Team Rentals, filed a complaint with the Summit County
BOR, asserting that a decrease in valuation to $1,125,000 was justified in light of
a “2012 professional appraisal and economic conditions.” Team Rentals attached
documents to the complaint, including (1) Klimczak’s 2011 correspondence with
Huntington Bank about refinancing the property, (2) Huntington’s request that an
appraisal be completed for use in “financing and internal collateral and risk
analysis, and/or possible use in foreclosure,” and (3) a copy of the appraisal report
prepared for the bank. The BOE filed a counter-complaint seeking retention of
the auditor’s valuation.
{¶ 6} The BOR held a hearing on August 12, 2013. Klimczak testified on
behalf of the property owner. He explained that the owner had lost money on the
property every year since 2002, with the exception of 2012. As proof, Klimczak
submitted 2011 and 2012 income-tax records.
{¶ 7} Klimczak also indicated that Team Rentals significantly lowered
rental rates for lessees (from roughly $16 per square foot in 2002 to $10 per
square foot). He stated that vacancies are still hard to fill, especially because
nearby office rentals are available at a lower rate. According to Klimczak, the
vacant space (approximately 20 percent of the building) had been listed for four
years. Klimczak’s business occupied several suites in the building and subsidized
the property’s losses by paying a higher rental rate for those suites. But the owner
still did not have enough money to complete needed repairs, such as a new roof.
{¶ 8} In light of these financial difficulties, Klimczak refinanced the
property with Huntington Bank in 2011. While the refinancing was being
negotiated, Brent T. Kuwatch was hired to appraise the property. A copy of
Kuwatch’s appraisal report was introduced by Team Rentals at the BOR hearing,
but Kuwatch did not testify.
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{¶ 9} In the report, Kuwatch considered each of the three standard
approaches to valuation. He concluded that “the cost approach [was] not
applicable due to the age of the improvements.” Under the sales-comparison
approach, he considered four sales (two outside Summit County) and arrived at a
value of $1,165,000. Finally, under the income approach, Kuwatch examined
rental data from other area buildings and arrived at a value of $1,075,000.
Ultimately, he opined a value of $1,125,000 as of June 14, 2011—a date six
months before the 2012 tax-lien date at issue in the case. The appraisal report
also contained disclaimers: Kuwatch cautioned that “[t]he depth of discussions
contained in this report is specific to the needs of the client for the intended use,”
and he clearly stated that “[t]he intended use of this report is to assist Huntington
Bank in making internal decisions regarding financing,” emphasizing that the
appraisal was “prepared for the exclusive benefit of said entity” and stating that it
“may not be used or relied upon by any other party.”
{¶ 10} The BOE did not present any evidence at the BOR hearing.
Instead, the BOE’s counsel relied on cross-examining Klimczak and observing
that the appraiser was not present for cross-examination.
{¶ 11} The record contains the deliberation of the BOR, in which the
appraisal value of $1,125,000 was adopted for the three parcels. On August 20,
2013, the BOR issued decisions retaining the auditor’s valuation for two of the
parcels, but it decreased the value of parcel No. 09-1267 from $1,271,970 to
$1,034,030, a reduction of $237,940. Thus, the BOR reduced the combined
valuation of the three parcels from a total of $1,362,930 to $1,125,000.
{¶ 12} The BOE appealed to the BTA, asking for reinstatement of the
auditor’s valuation for parcel No. 09-1267. The BOE did not file any further
pleadings or conduct discovery. At the BTA hearing on March 11, 2014, the
BOE waived its right to appear, but Team Rentals was represented by an attorney,
Thomas Skidmore. Skidmore noted that the BOE had not submitted any new
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evidence or presented any witness testimony to the BTA. He then directed the
BTA to the statutory transcript from the BOR proceedings and asked the BTA to
uphold the BOR’s decision.
{¶ 13} On May 9, 2014, the BTA issued a decision reversing the BOR and
reinstating the auditor’s initial valuation. 2014 Ohio Tax Lexis 2958, at 5-6. The
BTA held that the BOR’s determination to reduce the value was “unsupported by
competent and probative evidence.” Id. at 4. The BTA explained that the BOR had
erred by relying on an appraisal that (1) was not authenticated at the hearing by its
author, (2) had been prepared for refinancing purposes (rather than tax-assessment
purposes), and (3) opined a value for six months prior to the tax-lien date. Id. at 3.
The BTA also commented more broadly on the evidence in a footnote, sweepingly
characterizing it as the type that led to mere speculation on the part of the finder of
fact. Id. at 3, fn. 3. In effect, the BTA treated all the evidence presented at the
BOR hearing as incompetent to support a determination of value.
{¶ 14} Team Rentals has appealed.
THE AUDITOR’S VALUATION MAY NOT SERVE AS A DEFAULT VALUATION
WHEN THE OWNER’S EVIDENCE BEFORE THE BOR NEGATES THAT VALUE
{¶ 15} In this case, the BTA impugned all the evidence in the record and
reverted to the auditor’s determination of value. Given the record before it and
the determination of the BOR, this constituted error, and we therefore reverse the
BTA’s decision to revert to the auditor’s determination.
{¶ 16} The BTA’s error has two components: (1) a sweeping rejection of
the competency of the evidence to demonstrate the value of the property and (2)
the failure to recognize that the evidence before the BOR negated the validity of
the auditor’s valuation, thereby making it improper to revert to the auditor’s
valuation. We consider these components in reverse order.
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When the evidence negates the auditor’s valuation, the BTA must determine a new
value if the record permits it to do so
{¶ 17} Our case law has identified a category of cases in which “the
evidence presented to the board of revision or the BTA contradicts the auditor’s
determination in whole or in part”; in such cases, “when no evidence has been
adduced to support the auditor’s valuation, the BTA may not simply revert to the
auditor’s determination.” Dayton-Montgomery Cty. Port Auth. v. Montgomery
Cty. Bd. of Revision, 113 Ohio St. 3d 281, 2007-Ohio-1948, 865 N.E.2d 22, ¶ 27.
We have characterized this situation as a “narrow exception,” Colonial Village,
Ltd. v. Washington Cty. Bd. of Revision, 123 Ohio St. 3d 268, 2009-Ohio-4975,
915 N.E.2d 1196, ¶ 24, to the usual rule that the BTA is justified in retaining the
county’s valuation of the property when an appellant “fails to sustain its burden of
proof at the BTA,” id. at ¶ 23. The exception “trigger[s] the legal duty of the
BTA to determine whether the record as developed by the parties contain[s]
sufficient evidence to permit an independent valuation of the property”; if it does,
then the BTA must “perform such a valuation.” Id. at ¶ 25.
{¶ 18} Recently, we construed these earlier cases to hold that “[w]hen
confronted with * * * clear evidence negating the auditor’s valuation,” the BTA
“act[s] unreasonably and unlawfully in adopting the auditor’s valuation rather
than determining the taxable value of the property.” Dublin City Schools Bd. of
Edn. v. Franklin Cty. Bd. of Revision, 139 Ohio St. 3d 193, 2013-Ohio-4543, 11
N.E.3d 206, ¶ 26 (“Dublin City Schools I”). This conclusion was affirmed on
reconsideration. 139 Ohio St. 3d 212, 2014-Ohio-1940, 11 N.E.3d 222, ¶ 30
(“Dublin City Schools II”).
{¶ 19} This line of authority closely relates to what we have referred to as
“the Bedford rule,” based on Bedford Bd. of Edn. v. Cuyahoga Cty. Bd. of
Revision, 115 Ohio St. 3d 449, 2007-Ohio-5237, 875 N.E.2d 913. Pursuant to that
rule, “when the board of revision has reduced the value of the property based on
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January Term, 2016
the owner’s evidence, that value has been held to eclipse the auditor’s original
valuation,” and the board of education as appellant before the BTA may not rely
on the auditor’s valuation as a default valuation. Worthington City Schools Bd. of
Edn. v. Franklin Cty. Bd. of Revision, 140 Ohio St. 3d 248, 2014-Ohio-3620, 17
N.E.3d 537, ¶ 35. Instead, “the BOR’s adopting a new value based on” the
owner’s evidence has the effect of “ ‘shift[ing] the burden of going forward with
evidence to the board of education on appeal to the BTA.’ ” Worthington City
Schools at ¶ 35, 41, quoting Dublin City Schools I.
Team Rentals’ evidence both negated the validity of the auditor’s valuation and
furnished a basis for valuing the property
{¶ 20} Contrary to the BTA’s sweeping rejection of the evidence
presented, Team Rentals did succeed in negating the auditor’s determination.
{¶ 21} Turning first to the appraisal, we note the accuracy of the BTA’s
initial observations, all of which are significant in determining whether and in
what manner the appraisal can be used: the written report was presented without
authenticating and supporting testimony from the appraiser, the appraisal was
expressly performed for bank-financing purposes, and the “as of” date was six
months before the lien date. It is also true that the straightforward reliance on the
opinion of value concluded by the appraisal report was unlawful under these
circumstances. See Freshwater v. Belmont Cty. Bd. of Revision, 80 Ohio St. 3d 26,
30, 684 N.E.2d 304 (1997) (because “[t]he essence of an assessment is that it
fixes the value based upon facts as they exist at a certain point in time,” the BTA
properly rejected an opinion of value based upon averaging an appraisal of the
property before the lien date and another appraisal of the property after the lien
date); accord AP Hotels of Illinois, Inc. v. Franklin Cty. Bd. of Revision, 118 Ohio
St.3d 343, 2008-Ohio-2565, 889 N.E.2d 115, ¶ 13 (“To rely on the appraisal
report [determining value as of January 1, 2003] as expert opinion of value for the
2002 tax year would constitute error”).
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{¶ 22} But the attempt to use the opinion of value expressed in the
appraisal report as an opinion of value for a different date does not render the
appraisal incompetent as evidence for any purpose at all. Indeed, in AP Hotels,
we acknowledged the propriety of the BTA’s using the specific components of the
appraisal for the later tax year in determining the value for the current year. AP
Hotels, ¶ 14-17. And it became obligatory on the BTA to adopt that approach,
given that reverting to the auditor’s valuation would not have been proper. Id. at
¶ 18.
{¶ 23} Moreover, in Plain Local Schools Bd. of Edn. v. Franklin Cty. Bd.
of Revision, 130 Ohio St. 3d 230, 2011-Ohio-3362, 957 N.E.2d 268, we
specifically determined that there was no plain error in the BTA’s consideration
of a written bank appraisal despite the absence of testimony by its preparer, based
upon “indicia of reliability” in the testimony concerning the appraisal, id. at ¶ 21.
The fact that the report was commissioned and used by the bank for its business
purposes, along with the signed certification by the certified appraiser, furnished a
sufficient evidentiary basis for consideration of the report against a claim of plain
error.
{¶ 24} The circumstances of this case parallel those in Plain Local
Schools in several important respects. The appraisal in this case was offered
along with testimony as to its origin and use; specifically, Klimczak testified that
the appraisal was commissioned by the bank he consulted in connection with
refinancing the property in 2011. Klimczak needed a lower interest rate because,
as an anchor tenant, his business was subsidizing the other tenants, given the
decline in rents (rents in the area had declined from $16 to $10 since the
acquisition of the building). The bank’s analysis and the appraisal came to the
conclusion that the value of the property had decreased to $1,125,000. That
conclusion constricted the amount of equity against which Klimczak could
borrow, to the point that he had to raid a retirement account to obtain sufficient
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funds for the refinancing. The building also would need a new roof and other
repairs, and equity to pay those expenses would be lacking at a later date.
{¶ 25} The uncontroverted testimony thereby shows the preparation of the
appraisal for a business purpose as well as its actual use for that purpose; it also
demonstrates the reliance placed by both Klimczak and the bank on the
appraisal’s valuation of the property. Moreover, as in Plain Local Schools, the
appraisal report is certified by a state-certified appraiser and member of the
Appraisal Institute and his licensed, state-registered appraiser assistant. Finally,
the analysis of sale and rent comparables in the appraisal report is usable for
purposes of determining the property’s 2012 valuation, just as the data from the
2003 appraisal in AP Hotels was available for use in valuing the property for tax
year 2002. AP Hotels, at ¶ 16-17. Similarly, the May 1, 2004 appraisal
information in Plain Local Schools could reasonably have been used in valuing
the property as of January 1, 2005. Plain Local Schools at ¶ 28-30.
{¶ 26} In its brief, the BOE argues that it “lodged a timely objection to the
reliability of the report.” A review of the audio recording of the hearing reveals
that the BOE’s counsel did point out the absence of the appraiser and stated that
she would have asked him whether the value would be the same as of the lien date
and whether the value would be the same for real-estate-valuation purposes.
Counsel also pointed to the statement that the “leased fee” was the subject of the
appraisal rather than the “fee simple”; she had “questions with respect to that” as
well. 1
1
Although examination of the appraiser regarding his reference to valuing the “leased fee” might
have been helpful, the mere use of that term does not impugn the competence of the appraisal data.
Our case law makes clear that the distinction drawn in the appraisal industry between “fee simple”
and “leased fee” does not reflect a distinction made in Ohio law; the “fee simple” to be valued for
purposes of Ohio law is the same whether or not that interest is encumbered by a lease. See Meijer
Stores Ltd. Partnership v. Franklin Cty. Bd. of Revision, 122 Ohio St. 3d 447, 2009-Ohio-3479,
912 N.E.2d 560, ¶ 23, fn. 4.
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{¶ 27} Counsel’s statements with regard to these points do not amount to a
formal objection against the use of the appraisal or its information. But
ultimately, whether our review adheres to the plain-error standard, or whether we
conduct a more searching analysis as to the admissibility of the evidence, we
conclude that under the case law, the appraisal furnished evidence that in
conjunction with the testimony was competent; that negated the validity of the
auditor’s valuation; and that furnished an independent basis for valuing the
property.
{¶ 28} The same is true with the testimonial and documentary evidence
more generally. The BTA listed four types of evidence that it finds to be not
useful. 2014 Ohio Tax LEXIS 2958 at 3, fn. 3. One category is the type of
appraisal, that is, one given for purposes other than tax valuation, which we have
already addressed; as for the other three enumerated types, none is present here.
Instead, the evidence consists of a bank appraisal with accompanying lay
testimony along with other documents that offer specific evidence potentially
useful in valuing the property. We therefore hold that the BTA’s blanket
characterization of the evidence as not competent is erroneous.
{¶ 29} In light of the foregoing discussion, we hold that the present case
falls into the exception identified by Colonial Village in that the evidence
presented by the owner at the BOR both negates the validity of the auditor’s
valuation while also furnishing a basis for an independent determination of value
by the BTA.
A LEGAL ERROR IN THE BOR’S DETERMINATION PREVENTS AFFIRMANCE OF
THE BOR’S DETERMINATION
{¶ 30} Although the BTA erred in reverting to the auditor’s valuation, it
correctly perceived that the BOR’s determination could not be simply affirmed
and adopted. That is so because the BOR deliberation relies exclusively on the
appraisal opinion of value, without any qualification such as was present in AP
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Hotels, 118 Ohio St. 3d 343, 2008-Ohio-2565, 889 N.E.2d 115, and Plain Local
Schools, 130 Ohio St. 3d 230, 2011-Ohio-3362, 957 N.E.2d 268. Although the
ultimate determination of value might turn out to be correct, the BOR’s
straightforward reliance on the expressed opinion of value set forth in the
appraisal is wrong in that it violates Freshwater, 80 Ohio St. 3d at 30, 684 N.E.2d
304.
{¶ 31} Under these circumstances, we cannot simply reverse by invoking
the Bedford rule and reinstate the reduced value ordered by the BOR. The
presence of plain error in the BOR’s deliberation requires that, pursuant to the
doctrine of the Dublin City Schools II, 139 Ohio St. 3d 212, 2014-Ohio-1940, 11
N.E.3d 222, ¶ 32, we reverse and remand for an independent determination of
value by the BTA based on all the evidence set forth in the record. We also
follow the Dublin City Schools doctrine by instructing that on remand, the BTA
may in the exercise of its discretionary authority hear additional evidence in order
to arrive at a proper valuation of the property for tax year 2012. Id., ¶ 31.
CONCLUSION
{¶ 32} For the foregoing reasons, we reverse the decision of the BTA and
remand with instructions that the BTA perform an independent valuation of the
property.
Decision reversed
and cause remanded.
O’CONNOR, C.J., and PFEIFER, O’DONNELL, KENNEDY, FRENCH, and
O’NEILL, JJ., concur.
LANZINGER, J., concurs in judgment only.
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Britton, Smith, Peters & Kalail Co., L.P.A., and Karrie M. Kalail, for
appellee Copley-Fairlawn City School District Board of Education.
Thomas A. Skidmore, for appellant.
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