Case Title: Cobblestone Square Co., Ltd. v. Lorain Cty. Bd. of Revision

Citation: 2005-Ohio-5128

Docket Number: 20040883

State: ohio

Court: Ohio Supreme Court

Date: 2005-10-12T00:00:00Z

Document:
[Cite as Cobblestone Square Co., Ltd. v. Lorain Cty. Bd. of Revision, 106 Ohio St.3d 305, 2005-
Ohio-5128.] 
 
 
COBBLESTONE SQUARE CO., LTD., APPELLANT, v. LORAIN COUNTY BOARD OF 
REVISION ET AL., APPELLEES. 
[Cite as Cobblestone Square Co., Ltd. v. Lorain Cty. Bd. of Revision,  
106 Ohio St.3d 305, 2005-Ohio-5128.] 
Taxation — Real property — Value — Property owner fails to show economic 
duress was factor in fixing purchase price, when. 
(No. 2004-0883 — Submitted August 23, 2005 — Decided October 12, 2005.) 
APPEAL from the Board of Tax Appeals, Nos. 2002-T-2024 and 2002-T-2158. 
__________________ 
 
Per Curiam. 
{¶ 1} Appellant, Cobblestone Square Co., Ltd. (“Cobblestone”), 
purchased the real property in question in May 2001.  The property consists of 
approximately 8.34 acres and a one-story cement-block building of slightly over 
100,000 square feet, which formerly housed a Kmart store. 
{¶ 2} For tax year 2001, the Lorain County Auditor valued the real 
property at $3,417,110.  Based on a sale of the property on May 14, 2001, for 
$5,800,000, the Board of Education of the Elyria City School District (“Elyria”) 
filed a complaint with the Lorain County Board of Revision (“BOR”) contending 
that the property should be valued at $5,800,000.  Cobblestone filed a 
countercomplaint in which it contended that the property should be valued at the 
value assessed by the auditor.  After a hearing, the BOR determined that the 
property should be valued at $4,000,000.  Elyria filed a notice of appeal with the 
Board of Tax Appeals (“BTA”).  However, as a result of this court’s decision in 
Cleveland Elec. Illum. Co. v. Lake Cty. Bd. of Revision, 96 Ohio St.3d 165, 2002-
Ohio-4033, 772 N.E.2d 1160, the BTA returned the case to the BOR for proper 
certification of its decision. 
SUPREME COURT OF OHIO 
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{¶ 3} After the BOR’s decision was properly certified, both the BOE and 
Cobblestone filed notices of appeal with the BTA.  In their notices of appeal to 
the BTA, each party contended that the value should be the value set forth in its 
complaint to the BOR.  All parties waived the opportunity to present further 
evidence to the BTA and agreed to submit the matter based on the record before 
the BOR.  After reviewing the record, the BTA determined the value to be 
$5,800,000, which we affirm. 
{¶ 4} This cause is now before the court upon an appeal as of right. 
{¶ 5} At the hearing before the BOR, Cobblestone’s sole witness was 
Steve Edelman, the chief financial officer of Cobblestone’s parent company.  
Edelman testified that Cobblestone began the development of a shopping center in 
Sheffield Village in 1998 and 1999 with the expectation that it would be able to 
attract one or more major retail tenants.  However, that expectation did not come 
to fruition, and most of the major tenants that Cobblestone expected to attract 
went elsewhere.  Kmart was one of the only remaining viable tenants that 
Cobblestone wanted to attract. 
{¶ 6} Kmart, which had a regular Kmart store located on the property at 
issue, expressed an interest in relocating to Cobblestone’s shopping center to open 
a Super Kmart store.  However, Kmart had several years left on the lease for its 
existing location and would sign a lease to move to Cobblestone’s shopping 
center only if Cobblestone would take over its existing lease with Kmart’s 
landlord, GC Acquisitions.  Cobblestone wanted an anchor tenant for its shopping 
center, and Kmart’s terms were not negotiable, so Cobblestone agreed to assume 
the Kmart lease.  The lease assumed by Cobblestone in October 2000 ran until 
February 2009, with lease payments of $579,000 per year. 
{¶ 7} After assuming the Kmart lease, Cobblestone apparently could not 
find a tenant to sublease the entire building.  The lease for the property required 
GC Acquisitions’ permission to alter or subdivide the building.  GC Acquisitions 
January Term, 2005 
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denied Cobblestone’s request to subdivide the building.  However, GC 
Acquisitions offered to sell the building to Cobblestone for $5,800,000 on a take-
it-or-leave-it basis, and Cobblestone accepted. 
{¶ 8} Cobblestone’s first contention is that the purchase price reflects 
both the value of the property and the value of release from the lease, and that 
combined value is not equivalent to the value of the property alone for purposes 
of determining fair market value.  Thus, Cobblestone is contending that the price 
it paid was the sum of two separate transactions.  Assuming, for the purposes of 
discussion, that Cobblestone’s contention is correct, Cobblestone would have had 
to offer some evidence of the value of the property and the value of the release 
from the lease.  However, a review of the record does not show any evidence 
submitted by Cobblestone to show any breakdown of the purchase price into these 
separate values.  The BTA specifically found that “Cobblestone has provided no 
evidence to indicate that the purchase price is not reflective of true value.”  
Therefore, we reject this contention. 
{¶ 9} Cobblestone’s second contention is that the BTA erred in finding 
that the purchase was not motivated by economic duress.  While this court has 
generally recognized that a recent sale of property in an arm’s-length transaction 
is the best evidence of true value, we have also recognized that the sale price is 
not the only evidence.  Ratner v. Stark Cty. Bd. of Revision (1986), 23 Ohio St.3d 
59, 23 OBR 192, 491 N.E.2d 680, syllabus.  Cobblestone contends that the sale 
price was not the best evidence of value because the sale was not an arm’s-length 
sale.  In the syllabus of Walters v. Knox Cty. Bd. of Revision (1989), 47 Ohio 
St.3d 23, 546 N.E.2d 932, we defined the phrase “arm’s-length sale” to mean one 
“characterized by these elements: it is voluntary, i.e., without compulsion or 
duress; it generally takes place in an open market; and the parties act in their own 
self-interest.”  (Emphasis added.)  Thus, a transaction entered into under 
economic duress is not an arm’s-length transaction. 
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{¶ 10} In Lakeside Ave. L.P. v. Cuyahoga Cty. Bd. of Revision (1996), 75 
Ohio St.3d 540, 664 N.E.2d 913, we found that the purchase was the result of 
economic duress and, therefore, was not the result of an arm’s-length transaction.  
The evidence in Lakeside showed that the purchase price was not subject to 
negotiation, and there was no other acceptable property to which the purchaser 
could relocate.  Without the property, the underlying business in Lakeside 
probably would have filed bankruptcy.  Lakeside’s asset-based lender would not 
finance the purchase and prohibited the underlying business from applying its 
cash or working capital to the purchase of the property.  In order to purchase the 
property, the principals of the underlying business formed Lakeside Avenue 
Limited Partnership to secure the financing to purchase the property.  This court 
found that Lakeside “never had any real choice but to purchase the property in 
question.”  Id. at 549, 664 N.E.2d 913. 
{¶ 11} Cobblestone points to what it contends are certain similarities in its 
case to Lakeside and contends that it also was under economic duress when it 
purchased the Kmart property.  The similarities that Cobblestone relies on are 
that, as in Lakeside, the sellers made nonnegotiable offers, and in neither case was 
there evidence that the property was otherwise exposed to an open market.  There 
is testimony in the record that the owner’s offer to Cobblestone was on a take-it-
or-leave-it basis.  However, there is no evidence in the record as to whether the 
former owner did or did not expose the property to the open market.  In its brief, 
Cobblestone also claims that it would have become insolvent if it had had to 
continue to pay the rent.  However, a review of the record fails to show any 
evidence of that claim being made at the hearing.  Cobblestone’s representative 
indicated that the purpose of taking over the Kmart property was to mitigate a 
loss.  There is no contention that Cobblestone entered into the assumption of the 
lease under duress.  There is no contention that GC Acquisitions changed the 
terms of the lease after it was assumed by Cobblestone.  At the BOR hearing, 
January Term, 2005 
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Cobblestone’s representative affirmed that given the base rent, plus an obligation 
on a triple-net basis to maintain common areas (an additional $2 to $3 per foot), 
the building was purchased for the same amount it would have cost to lease.  
Apparently, after being unsuccessful in leasing the property for several months, 
rather than continuing to make the payments over the remaining term of the lease, 
Cobblestone purchased the property.  The fact that the owner refused to waive an 
existing condition of the lease and permit Cobblestone to subdivide the building 
does not show economic duress. 
{¶ 12} The evidence in this case shows that Cobblestone freely entered 
into a business arrangement so that Kmart would open a superstore in 
Cobblestone’s new shopping center.  There is no evidence in the record as to how 
much rent Kmart is paying at the new shopping center.  Thus, there is no evidence 
of the overall economics of the business deal made by Cobblestone. 
{¶ 13} Cobblestone had to know when it voluntarily took over the Kmart 
lease that it was assuming the risk of not being able to sublease the property and 
having to make the lease payments.  After several months with no tenant for the 
Kmart property, Cobblestone apparently determined that the purchase of the 
property made more economic sense than continuing to pay the rent.  Cobblestone 
made several business judgments that may or may not have been good judgments, 
but we do not find that Cobblestone has demonstrated that its purchase of the 
Kmart property was made under economic duress. 
{¶ 14} Finally, Cobblestone contends that the BTA erred in finding that it 
was not acting under economic duress when Kmart made the assumption of its 
lease a nonnegotiable condition of opening a superstore in Cobblestone’s new 
shopping center.  Cobblestone’s assumption of the Kmart lease is one step 
removed from the purchase of the Kmart property, which is the subject of this 
case, and is not relevant to whether the purchase of the Kmart was made under 
economic duress.  The BTA found that “there is nothing in the record to establish 
SUPREME COURT OF OHIO 
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that Cobblestone needed this one particular retailer, i.e., K-mart, to make the 
shopping center viable.”  Thus, even if the assumption of the lease were relevant 
to value in this case, there is no evidence that Cobblestone was compelled to take 
over the Kmart lease. 
{¶ 15} For all of the reasons set forth above, we find that the decision of 
the BTA was reasonable and lawful and affirm it. 
Decision affirmed. 
 
MOYER, C.J., RESNICK, LUNDBERG STRATTON, O’CONNOR, O’DONNELL 
and LANZINGER, JJ., concur. 
 
PFEIFER, J., concurs in judgment only. 
__________________ 
 
PFEIFER, J., concurring in judgment only. 
{¶ 16} “Although the sale price is the ‘best evidence’ of true value of real 
property for tax purposes, it is not the only evidence.  A review of independent 
appraisals based upon factors other than the sale price is appropriate where it is 
shown that the sale price does not reflect true value. (Columbus Bd. of Edn. v. 
Fountain Square Assoc., Ltd. [1984], 9 Ohio St.3d 218, 219 [9 OBR 528, 459 
N.E.2d 894], construed.)”  Ratner v. Stark Cty. Bd. of Revision (1986), 23 Ohio 
St.3d 59, 23 OBR 192, 491 N.E.2d 680, syllabus. 
{¶ 17} In this case, Cobblestone Square Co., Ltd. purchased an empty 
building for the value of a fully leased building.  Cobblestone did this to further 
one of its other business ventures.  Whether that was a good decision is 
questionable.  What is not questionable is that the empty building Cobblestone 
purchased would not have been worth that price to anyone but Cobblestone.  
Unlike the majority, I believe that Cobblestone acted under economic duress.  
Therefore, the price it paid does not reflect true value, and the rebuttable 
presumption that sale price is the best evidence of value does not apply.  
Cobblestone did not, however, satisfy its burden of proving true value by, for 
January Term, 2005 
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instance, obtaining an independent appraisal.  See Ratner at syllabus.  Because of 
this omission, Cobblestone cannot prevail.  Accordingly, I concur in the 
judgment. 
__________________ 
 
Martin Hughes & Associates, Martin J. Hughes III, and Jackie Lynn 
Hager, for appellant. 
 
Armstrong, Mitchell, Damiani & Zaccagnini and  Timothy J. Armstrong 
for appellee Board of Education of Elyria City School District. 
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