On June 6, 2012, the Supreme Court handed down a merit decision in this case. Read the analysis here.
On February 7, the Supreme Court of Ohio heard oral argument in Board of Education of the City School District of the City of Cincinnati (School Board) v. Roger T. Conners and Deborah Conners. (Deborah Conners is Roger Conners’ mother, and simply co-signed on the sale).
The Roosevelt school was one of a number of old school buildings the School Board determined was no longer suitable for classroom use pursuant to R.C. 3313.41(G)(1). The School Board sold the building at public auction subject to a deed restriction specifically forbidding the use of the property for school purposes at any time. The Conners were the sole bidders on the property, which they bought for $30,000. (The appraised value of the property was $250,000). The School Board became aware of the fact that Dr. Conners planned to re-open the school as a charter school and sought to stop him from doing that. Dr. Conners argued that the deed restriction was against Ohio public policy. Both the trial court and court of appeals agreed with Conners. Read the oral argument preview of the case here.
Under the then-existing version of 3313.41(G)(1), if an old school building that a school board wanted to sell was still suitable for use as classroom space, the board had to first offer the building to charter schools in that district for sale at the appraised value. If a school board determined the building was no longer suitable for classroom space—which is what the Cincinnati School Board determined about Roosevelt school—it did not have to offer the building to charter schools first. The statute has since been amended to eliminate that suitability requirement, and charter schools now have the right of first refusal on all old buildings.
At argument, counsel for the School Board argued that R.C. 3313.17 gives school boards the discretion to enter into contracts for the benefit of school districts, and there is absolutely no prohibition on deed restrictions. The restriction in this deed was valid, and the courts should not step in and add extra-statutory public policy reasons to void a valid contract. The then-existing statute granted first refusal rights to charter schools before public auction, but only if the buildings were still suitable as classroom space. Based on good faith objective criteria, the Cincinnati school board determined that Roosevelt school was no longer suitable for classroom space, so it never offered that building to any charter school. If it had, Dr. Conners would not have been eligible to buy it because he was not an existing charter school operator.
Counsel for Dr. Conners argued that the deed restriction in this sale violated Ohio public policy in favor of conveying old school buildings to charter schools (and other public schools) to effectuate school choice in failing districts. Public policy trumps the deed restriction, and vitiates any intent the Conners’ had to ignore it. The conveyance itself was valid; only the restriction should be stricken under the contract’s severability clause. The Conners also disagreed with the School Board’s suitability determination, but that is not an issue in this case.
Counsel for the amicus in support of Dr. Conners’ position made a standing argument—the only way to have standing to challenge the deed restriction was to buy the property, then challenge the restriction.
Afraid of the Competition?
Justice Stratton immediately jumped on the school board’s position supporting the restriction, asking if the Board was afraid of the competition. Would it rather the building be a go-go bar or a dance hall? Both she and Chief Justice O’Connor asked why the Board wouldn’t want to allow someone else to fix it up as a school? Wouldn’t it be a benefit to the community to have the building rehabbed and up to code, no matter the purpose?
Justice Stratton persisted—first the school board decided it didn’t need to offer the building to charter schools, then it decided that even if someone bought it and fixed it up on their own, it shouldn’t be operated as a school. She was clearly bothered by this.
Exactly What was the School Board Obligated to Do Here?
Justice O’Donnell wanted to make sure there was no first offer made to a charter school here (answer-none was required since the space wasn’t suitable for classroom use)
Justice Cupp asked what gives a school board the right to exclude any kind of buyer when it put a property up for public auction. Could it put any kind of deed restriction in it wanted? Could it limit the sale to Cincinnati residents? Didn’t political subdivisions only have the authority to do what a statute authorizes? What is the authority that restricts the class of persons to whom property can be sold?
The Deed Restriction
Justice Lanzinger asked if the Board was doubly prohibiting this acquisition, first by making its own suitability determination, then taking things one step further with the deed restriction saying we are going to prevent any acquisition by the charter schools.
Justice Cupp aksed whether a school board had the authority to insert a deed restriction for any purposes, noting that even a change in the statute didn’t affect the issue in this case.
Justice McGee Brown asked whether, if we remove the suitability issue from the equation (and it is no longer an issue in the amended statute) this deed restriction violates public policy?
Isn’t this Just a Contract Case?
Justice Pfeifer asked whether the analysis to determine the viability of deed restrictions was a contract analysis. He noted that the school board brought this as a straight contracts case; only the Conners added the public policy aspect.
Chief Justice O’Conner asked whether the Court should say it was ok for the buyers to enter into this contract knowing full well they intended to ignore the deed restriction. She asked counsel for the Connors point blank, “how do you get past the fact that your clients fraudulently entered into this contract?”
Justice McGee Brown said to counsel for amicus, “you said all the equities are on your clients’ side,” and then asked about the kind of public policy that would uphold a contract fraudulently entered into by a purchaser who signed a deed restriction with no intent to comply with it.
Can the property be sold without the approval of the General Assembly?
Justice Pfeifer pursued a line of questioning establishing the fact that a school board is a political subdivision, a local entity, and did not need any approval from the legislature to sell its buildings, as would be required for state owed land. He later asked where the General Assembly gets the authority to affect the ownership of property the state doesn’t own.
Did the Deed Restriction Reduce the Value of the Property?
Justice Cupp asked whether the deed restriction significantly reduced the value of the property? Didn’t having the deed restriction offend the statutory provision that when sold at auction the building should be sold for the highest value obtainable?
Chief Justice O’Connor, noting that there was only one bidder, mused whether that is what the market would bear.
How it Looks from the Bleachers
The Justices seemed equally uncomfortable with what they seemed to perceive as the school board’s peremptory attitude about what it did or didn’t owe to charter schools and its position about total freedom to add any deed restriction it wanted, and with the idea of countenancing the conduct of buyers who buy property with the intent to defraud the sellers when they know up front they have no intention of abiding by the deed restriction. The Court seems split on whether there is a strong public policy favoring charter schools that will trump the deed restriction in the case, with Justice Stratton appearing the most sympathetic to that position. Justices Pfeifer and Cupp, both of whom spent time as legislators, seemed to disagree about the authority of political subdivisions in property sales.