Case Title: Cordray v. Internatl. Preparatory School

Citation: 2010-Ohio-6136

Docket Number: 20091418

State: ohio

Court: Ohio Supreme Court

Date: 2010-12-20T00:00:00Z

Document:
[Cite as Cordray v. Internatl. Preparatory School, 128 Ohio St.3d 50, 2010-Ohio-6136.] 
 
CORDRAY, ATTY. GEN., ET AL., APPELLANTS, v. INTERNATIONAL 
PREPARATORY SCHOOL ET AL.; SHABAZZ, APPELLEE. 
[Cite as Cordray v. Internatl. Preparatory School,  
128 Ohio St.3d 50, 2010-Ohio-6136.] 
The treasurer of a community school is a public official and may be strictly liable 
to the state for the loss of public funds. 
(No. 2009-1418 — Submitted April 21, 2010 — Decided December 20, 2010.) 
APPEAL from the Court of Appeals for Cuyahoga County, No. 91912, 
2009-Ohio-2364. 
__________________ 
 
PFEIFER, Acting C.J. 
{¶ 1} This case stems from the demise of a community school formed 
pursuant to R.C. Chapter 3314.  We address the issue of whether a treasurer of a 
community school is a public official who may be strictly liable to the state for 
public funds lost when the school accepted public funds that it was not entitled to 
receive.  We hold that an officer, employee, or duly authorized representative or 
agent of a community school is a public official and may be held strictly liable to 
the state for the loss of public funds. 
Factual and Procedural Background 
{¶ 2} The International Preparatory School (“TIPS”), a nonprofit 
corporation organized under R.C. Chapter 1702, operated as a community school 
pursuant to R.C. Chapter 3314.  Defendant-appellee Hasina Shabazz and her now-
deceased husband, Da’ud Abdul Malik Shabazz, were members of the board of 
TIPS.  Pursuant to R.C. Chapter 3314, a community school is operated by a 
governing authority, pursuant to a contract with a state-approved sponsor.  TIPS 
was sponsored by the Lucas County Educational Service Center (“LCESC”).  As 
a community school, TIPS received state funding based largely upon the number 
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of students enrolled at the school as reported to the Ohio Department of 
Education. R.C. 3314.08. 
{¶ 3} On October 18, 2005, TIPS ceased operating as a community 
school.  On October 20, 2005, the state petitioned the trial court for, among other 
relief, a temporary restraining order and the appointment of a receiver to secure 
TIPS’s assets.  The trial court issued a temporary restraining order that same day 
and appointed a receiver in January 2006. 
{¶ 4} On January 30, 2007, the state auditor issued a report of an audit of 
TIPS for July 1, 2004, through October 18, 2005.  The auditor determined that 
TIPS had improperly sought and received $1,407,983 from the Department of 
Education by submitting inflated enrollment figures.  The auditor issued a finding 
in favor of the Department of Education against TIPS as an entity and against 
Shabazz and her husband individually.  In her finding for recovery, the auditor 
stated: 
{¶ 5} “[TIPS] permanently closed and ceased its operation as a 
community school in October 2005.  Between July 1, 2004 and October 18, 2005, 
[TIPS] was over funded by the Ohio Department of Education in the amount of 
$1,407,983, which was deposited into [TIPS’s] account.  The Ohio Department of 
Education calculated the amount overpaid for the year ended June 30, 2005 was 
$361,446 and for the year ended June 30, 2006 was $1,046,537.  Since [TIPS] 
was not eligible for these funds, the funds were due the Ohio Department of 
Education and should have been returned. 
{¶ 6} “In accordance with the foregoing facts, and pursuant to Ohio Rev. 
Code Section 117.28, a Finding for Recovery for public funds due the State that 
has not been remitted is hereby issued against [TIPS], Hasina Shabazz, Treasurer 
and the estate of Da’ud Abdul Malik [sic], Chairman of the Board of Trustees, 
jointly and severally, and in favor of the Ohio Department of Education in the 
amount of $1,407,983.” 
January Term, 2010 
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{¶ 7} R.C. 117.28 and 117.36 authorize the state to institute a civil action 
to reduce to judgment any audit findings that show the misuse of public funds.  
On August 3, 2007, the state filed an amended complaint against Shabazz and her 
husband’s estate.  In her answer to the complaint, Shabazz claimed to have been 
“treasurer of the International Preparatory School Corporate Board,” and she 
continues to argue before this court that she was not the treasurer of the school, 
but treasurer only of the board of directors of TIPS. 
{¶ 8} Shabazz and the state filed cross-motions for summary judgment.  
Shabazz argued that two statutes shield her from liability: R.C. 1702.55, under 
which “members, the directors, and the officers of a corporation shall not be 
personally liable for any obligation of the corporation,” and R.C. 3314.071, which 
states that “[n]o officer, director, or member of the governing authority of a 
community school incurs any personal liability by virtue of entering into any 
contract on behalf of the school.”  The trial court found Shabazz’s reliance on the 
statutes misplaced, found her personally liable for the public funds at issue, and 
granted the state’s motion for summary judgment against her. 
{¶ 9} Shabazz appealed to the Eighth District Court of Appeals.  On May 
21, 2009, the appellate court reversed the trial court’s summary judgment.  The 
court held that Shabazz was not a “public official” under the ordinary meaning of 
that term, and therefore could not be held personally, strictly liable for the 
overpayments to TIPS. Cordray v. Internatl. Preparatory School, Cuyahoga App. 
No. 91912, 2009-Ohio-2364, ¶ 31-35. 
{¶ 10} Further, the court held that since R.C. 3314.03(A)(1) mandated 
that community schools be established as nonprofit corporations under R.C. 
Chapter 1702, the officers and directors of community schools are protected by 
R.C. 1702.55. Id. ¶ 36.  However, the court held that Shabazz could be liable if 
the state could prove that she had breached her fiduciary duty as a director of a 
publicly funded corporation or if the state could prove personal wrongdoing 
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sufficient to pierce the corporate veil. Id. at ¶ 41.  The court thus held that there 
were genuine issues of material fact regarding whether Shabazz caused the 
improper payment of public money to TIPS, and it remanded the matter to the 
trial court. 
{¶ 11} The cause is before this court upon the acceptance of a 
discretionary appeal.  Cordray v. Internatl. Preparatory School, 123 Ohio St.3d 
1470, 2009-Ohio-5704, 915 N.E.2d 1253. 
Law and Analysis 
{¶ 12} That public officials are liable for the public funds they control is 
firmly entrenched in Ohio law.  In Crane Twp. ex rel. Stalter v. Secoy (1921), 103 
Ohio St. 258, 259-260, 132 N.E. 851, this court stated that it is “pretty well settled 
under the American system of government that a public office is a public trust, 
and that public property and public money in the hands of or under the control of 
such officer or officers constitute a trust fund, for which the official as trustee 
should be held responsible to the same degree as the trustee of a private trust 
fund.” 
{¶ 13} In Seward v. Natl. Surety Co. (1929), 120 Ohio St. 47, 49, 165 
N.E. 537, this court stated, “It has been the general policy, not only with 
government employees and appointees, but with state officers, county officers, 
township officers, and all other public officials, to hold the public official 
accountable for the moneys that come into his hands * * *.” 
{¶ 14} The liability for public officials is strict: “Over the years, this court 
has held public officials liable for the loss of public funds, even though illegal or 
otherwise blameworthy acts on their part were not the proximate cause of the loss 
of public funds.” State v. Herbert (1976), 49 Ohio St.2d 88, 96, 3 O.O.3d 51, 358 
N.E.2d 1090. 
{¶ 15} Although, as this court stated in Herbert, applying strict liability 
seems harsh, id., it is necessary from a public-policy standpoint: 
January Term, 2010 
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{¶ 16} “ ‘[I]t would be distinctly against public policy not to require a 
public officer to account for and disburse according to law moneys that have 
come into his hands by virtue of his being such public officer; that it would open 
the door very wide for the accomplishment of the grossest frauds if public 
officials were permitted to present as the defense, when called on to disburse the 
money according to law, that it had been (performed) or destroyed by some 
deputy, or other subordinate, connected with the public office.’ ”  Id. at 96-97, 
quoting Seward, 120 Ohio St. at 50, 165 N.E. 537.  
{¶ 17} The state asserts that Shabazz, as treasurer of a community school, 
is a public official who should be liable for funds illegally collected by TIPS.  In 
determining whether a community-school treasurer is a public official, we look to 
the Revised Code for guidance.  R.C. 9.39 represents a codification of Ohio 
common law imposing strict liability on public officials for the loss of public 
funds with which they have been entrusted.  The statute reads: 
{¶ 18} “All public officials are liable for all public money received or 
collected by them or their subordinates under color of office.” 
{¶ 19} R.C. 9.38(1) provides that for the purposes of R.C. 9.39, the 
definitions of “public official,” “public office,” and “color of office” are the same 
as those contained in R.C. 117.01.  R.C. 117.01(E) states, “ ‘Public official’ 
means any officer, employee, or duly authorized representative or agent of a 
public office.” 
{¶ 20} Thus, an officer, employee, or duly authorized representative of a 
charter school is a public official only if a community school is a “public office.”  
R.C. 117.01(D) defines “public office”: 
{¶ 21} “ ‘Public office’ means any state agency, public institution, 
political subdivision, other organized body, office, agency, institution, or entity 
established by the laws of this state for the exercise of any function of 
government.” 
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{¶ 22} Community schools fall within the definition of public office 
because they are entities “established by the laws of this state for the exercise of 
[a] function of government.”  As this court held in State ex rel. Ohio Congress of 
Parents & Teachers v. State Bd. of Edn., 111 Ohio St.3d 568, 2006-Ohio-5512, 
857 N.E.2d 1148, ¶ 32, community schools are legislatively created as a part of 
Ohio’s constitutionally required system of common schools: 
{¶ 23} “The Ohio Constitution requires establishment of a system of 
common schools.  This requirement is grounded in the state’s interest in ensuring 
that all children receive an adequate education that complies with the Thorough 
and Efficient Clause.  To achieve the goal of improving and customizing public 
education programs, the General Assembly has augmented the state’s public 
school system with public community schools.  The expressed legislative intent is 
to provide a chance of educational success for students who may be better served 
in their educational needs in alternative settings.” 
{¶ 24} The General Assembly made clear in R.C. 3314.01(B) that 
community schools are public schools: “A community school created under this 
chapter is a public school, independent of any school district, and is part of the 
state’s program of education.”  Thus, as entities “established by the laws of this 
state for the exercise of any function of government,” community schools are 
public offices pursuant to R.C. 117.01(D).  In turn, an officer, employee, or duly 
authorized representative of a community school is a public official pursuant to 
R.C. 117.01(E). 
{¶ 25} Returning to R.C. 9.39, that statute provides that “public officials 
are liable for all public money received or collected by them or by their 
subordinates under color of office.”  We have already determined that an officer, 
employee, or duly authorized representative of a community school is a public 
official.  R.C. 117.01(A) defines “color of office”: 
January Term, 2010 
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{¶ 26} “ ‘Color of office’ means actually, purportedly, or allegedly done 
under any law, ordinance, resolution, order, or other pretension to official right, 
power, or authority.” 
{¶ 27} Under R.C. 117.01, public money received pursuant to the 
community-school-funding scheme set forth in R.C. 3314.08 would meet the R.C. 
9.39 element of “public money received or collected * * * under color of office.”  
Those payments were made by the state to TIPS due to the requirements of Ohio’s 
community-school-funding laws. 
{¶ 28} A factual question remains, however.  In order for the state to 
establish Shabazz’s liability, it must show that she or her subordinates received or 
collected public money under color of office.  Shabazz disputes that she was the 
treasurer of TIPS; she claims that she was the treasurer of the board of directors of 
TIPS.  She claims that other people were hired as treasurer for the school, but also 
admits that she occasionally filled in as interim treasurer when the school lacked a 
treasurer. 
{¶ 29} The label “treasurer” is less important than the character of the 
position she held.  We remand the matter to the trial court for a determination of 
whether Shabazz’s responsibilities at TIPS included the receipt or collection of 
public money, or whether she supervised employees who received or collected 
public money under color of office.  We note that R.C. 3314.011 requires every 
community school to have a “designated fiscal officer,” whom the state auditor 
may require to be bonded. 
{¶ 30} Finally, we hold that R.C. 1702.55 offers no protection for public 
officials.  Public officials are personally liable for public funds.  Thus, R.C. 
1702.55, which protects members, directors, and officers of corporations from the 
debts of the corporation, does not protect public officials from liability for lost 
public funds.  Liability attaches to a public official by virtue of the public office 
he or she holds.  It is his or her own obligation to “account for and disburse 
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according to law moneys that have come into his hands by virtue of his being 
such public officer.” Seward, 120 Ohio St. 47, 50, 165 N.E. 537. Any liability that 
arises therefrom is not a corporate debt—it is the official’s own debt. 
Conclusion 
{¶ 31} Accordingly, we affirm the judgment of the court of appeals that 
summary judgment was inappropriate, although for different reasons, and we 
remand the cause to the trial court. 
Judgment affirmed 
and cause remanded. 
 
LUNDBERG STRATTON, O’CONNOR, O’DONNELL, LANZINGER, and CUPP, 
JJ., concur. 
 
BROWN, C.J., not participating. 
__________________ 
Richard Cordray, Attorney General, Benjamin C. Mizer, Solicitor General, 
Brandon J. Lester, Deputy Solicitor, and Todd R. Marti, Assistant Solicitor, for 
appellants. 
Brett E. Horton and Earle C. Horton, for appellee. 
Cloppert, Latanick, Sauter & Washburn and Sue A. Salamido, urging 
reversal for amicus curiae Ohio Education Association. 
Ulmer & Berne, L.L.P., and Donald J. Mooney Jr., urging reversal for 
amici curiae Ohio Federation of Teachers, Ohio School Boards Association, Ohio 
Association of School Business Officials, Buckeye Association of School 
Administrators, and Ohio Association of Public School Employees. 
Eastman & Smith, Ltd., Albin Bauer II, and Amy J. Borman, urging 
affirmance for amici curiae Imagine Charter Schools, Center for Education 
Reform, and Atlantic Legal Foundation. 
______________________