Court Opinion

ID: 2760721
Source: CourtListenerOpinion
Date Created: 2014-12-15 18:04:51.133747+00
Date Added: 2024-06-11T11:27:05.644167
License: Public Domain

[Cite as The CIT Group/Equipment Fin., Inc. v. Brown Cty., 2014-Ohio-5489.]

                                    IN THE COURT OF APPEALS

                           TWELFTH APPELLATE DISTRICT OF OHIO

                                           BROWN COUNTY

THE CIT GROUP/EQUIPMENT                               :
FINANCING, INC. d.b.a. TOSHIBA
AMERICA MEDICAL CREDIT,                               :
                                                                  CASE NO. CA2014-06-011
        Plaintiff-Appellant,                          :
                                                                          OPINION
                                                      :                    12/15/2014
   - vs -
                                                      :

BROWN COUNTY, OHIO, et al.,                           :

        Defendants-Appellees.                         :

            CIVIL APPEAL FROM BROWN COUNTY COURT OF COMMON PLEAS
                                Case No. 2013-0588

Keating, Muething & Klekamp, PLL, Brian P. Muething, 1 East Fourth Street, Suite 1400,
Cincinnati, Ohio 45202, for plaintiff-appellant

Jessica A. Little, Brown County Prosecuting Attorney, 510 East State Street, Suite 2,
Georgetown, Ohio 45121, for defendant-appellee, Brown County, Ohio

        M. POWELL, J.

        {¶ 1} Plaintiff-appellant, The CIT Group/Equipment Financing, Inc. d.b.a. Toshiba

America Medical Credit (CIT), appeals from a decision of the Brown County Court of

Common Pleas granting summary judgment in favor of defendant-appellee, Brown County,
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Ohio.1 For the reasons outlined below, we affirm the decision of the trial court.

       {¶ 2} This appeal involves two municipal lease agreements entered into by CIT and

Brown County General Hospital (the Hospital). CIT is a company that leases medical

equipment. The Hospital is a county hospital created by statute whereby a board of Hospital

Trustees (Hospital Trustees) is appointed to govern the Hospital. The lease agreements

were entered into by CIT and the Hospital in early 2008 regarding an MRI and related site

improvements. Both leases were signed by the president and CEO of the Hospital, Michael

C. Patterson, and authorized by the Hospital Trustees.

       {¶ 3} As this is an appeal from a grant of summary judgment, the following facts are

construed most favorably to CIT. In 2007, the Hospital was facing financial troubles and to

alleviate the budget crisis, the Hospital Trustees presented the Brown County Board of

Commissioners (Board of Commissioners) with a request to issue $5 million in bonds. Within

its breakdown, the Hospital Trustees included an MRI machine and accompanying building.

The Board of Commissioners favored issuing $5 million worth of revenue bonds. These

revenue bonds were secured solely by the Hospital's revenues as opposed to the full faith

and credit of the county.

       {¶ 4} Later the same year, as required by R.C. 339.06(D)(3), the Board of

Commissioners approved the Hospital's operating and capital budgets. Included as a

precursor to the operating budget was a sheet listing assumptions on which the budget was

based. One assumption was that an MRI unit had already been purchased and construction

on a building housing the MRI was underway with a projected completion and operational

date of January 2008. Under the assumptions a line item was included for "additional MRI

depreciation" and projected revenue was included for the MRI project. However, the final

1. Pursuant to Loc.R. 6(A), we have sua sponte removed this case from the accelerated calendar.
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operating budget only included a line item for "leases and rentals" and "depreciation and

amortization" and did not include a specific line item for the MRI project.

       {¶ 5} Eventually, the Hospital Trustees informed the Board of Commissioners of the

Hospital's deteriorating financial condition and its questionable ability to remain solvent,

notwithstanding the issuance of the revenue bonds. The Board of Commissioners in

conjunction with the Hospital Trustees issued requests for proposals pursuant to public

bidding requirements for the sale of the Hospital. On January 6, 2011, Southwest Healthcare

Services, LLC (Southwest) submitted a proposal for the acquisition of the assets and

operations of the Hospital.

       {¶ 6} An Asset Purchase Agreement between Southwest, the Board of

Commissioners, and the Hospital Trustees was entered into in May 2011. According to a

resolution adopted by the Board of Commissioners on May 11, 2011:

              Southwest has agreed to assume all liabilities of the Hospital,
              indemnify the Board of County Commissioners for any claims or
              losses, and will provide a secured promissory note in the amount
              of three hundred thousand dollars ($300,000.00) for the funds
              owed by the Hospital to the County[.]

This resolution concluded the transaction with Southwest.

       {¶ 7} In the midst of the sale, a Forbearance Agreement was being negotiated with

CIT because the Hospital had defaulted on the leases. CIT agreed to forbear from enforcing

its rights and remedies under the two leases in default in exchange for the Hospital making

smaller payments over a certain period of time. Additionally, an Assignment and Assumption

Agreement effective June 2, 2011 between the Hospital, Southwest, and CIT outlined

Southwest's assumption of all the obligations of the Hospital under the leases. The parties

acknowledged that the terms and conditions set forth in the Forbearance Agreement applied

to Southwest.    However, the scheduled payments agreed to under the Forbearance

Agreement were never made to CIT.
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       {¶ 8} On August 7, 2013, CIT filed suit against Southwest and Brown County,

claiming that they were jointly and severally liable for default on the two leases. Motions for

summary judgment were subsequently filed by CIT and Brown County. The trial court

granted summary judgment in favor of CIT in regard to its claim against Southwest.

Regarding CIT's claim against Brown County, the trial court granted summary judgment in

favor of Brown County. The trial court found that as a matter of law, no principal/agent

relationship existed between Brown County and the Hospital, either by statute or conduct.

Further, the trial court found that the language in the Forbearance and Assignment and

Assumption Agreements is clear that CIT was to look to the Hospital exclusively for

satisfaction of the leases. In turn, Southwest assumed the Hospital's obligations.

       {¶ 9} CIT now appeals, raising two assignments of error for review. Because CIT's

assignments of error are related, we will address its assignments of error together.

       {¶ 10} Assignment of Error No. 1:

       {¶ 11} THE TRIAL COURT COMMITTED LEGAL ERROR IN ITS INTERPRETATION

OF THE OHIO REVISED CODE SECTIONS REGARDING COUNTY HOSPITALS IN

GRANTING BROWN COUNTY'S MOTION FOR SUMMARY JUDGMENT AND DENYING

CIT'S MOTION FOR SUMMARY JUDGMENT.

       {¶ 12} Assignment of Error No. 2:

       {¶ 13} ALTERNATIVELY, THE TRIAL COURT ERRED BY FAILING TO CONCLUDE

THAT THE PARTIES' COURSE OF CONDUCT CREATED AN AGENCY RELATIONSHIP.

       {¶ 14} CIT argues that an agency relationship exists between Brown County and the

Hospital Trustees either explicitly by statute or impliedly through conduct. Specifically, CIT

asserts that under R.C. Chapter 339, while the day-to-day functions of the Hospital are

placed on the Hospital Trustees, the Board of Commissioners retains authority. In contrast,

Brown County asserts that general agency law principles are not applicable to county
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governments because the Board of Commissioners has no more authority than specifically

conferred or clearly implied by statute.

       {¶ 15} Summary judgment is a procedural device used to terminate litigation when

there are no issues in a case requiring a formal trial. Roberts v. RMB Ents., Inc., 197 Ohio

App.3d 435, 2011-Ohio-6223, ¶ 6 (12th Dist.). This court's review of a trial court's ruling on a

summary judgment motion is de novo. Lindsay P. v. Towne Properties Asset Mgt. Co., Ltd.,

12th Dist. Butler No. CA2012-11-215, 2013-Ohio-4124, ¶ 16. In applying the de novo

standard, the appellate court is required to "us[e] the same standard that the trial court

should have used, and * * * examine the evidence to determine whether as a matter of law

no genuine issues exist for trial." Bravard v. Curran, 155 Ohio App.3d 713, 2004-Ohio-181, ¶

9 (12th Dist.).

       {¶ 16} Civ.R. 56 sets forth the summary judgment standard.            In order to grant

summary judgment the court must find that (1) there be no genuine issues of material fact to

be litigated, (2) the moving party is entitled to judgment as a matter of law, and (3)

reasonable minds can come to only one conclusion being adverse to the nonmoving party.

Slowey v. Midland Acres, Inc., 12th Dist. Fayette No. CA2007-08-030, 2008-Ohio-3077, ¶ 8.

The moving party has the burden of demonstrating that there is no genuine issue of material

fact. Harless v. Willis Day Warehousing Co., 54 Ohio St.2d 64, 66 (1978).

       {¶ 17} Agency is "'a consensual fiduciary relationship between two persons where the

agent has the power to bind the principal by his actions, and the principal has the right to

control the actions of the agent.'" Cincinnati Golf Mgt., Inc. v. Testa, 132 Ohio St.3d 299,

2012-Ohio-2846, ¶ 20, quoting Funk v. Hancock, 26 Ohio App.3d 107, 110, (12th Dist.1985).

"[O]ne of the most important features of the agency relationship is that the principal itself

becomes a party to contracts that are made on its behalf by the agent." (Emphasis sic.)

Testa at ¶ 23. "[B]inding the principal to agent-made contracts typically requires that the
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agent make the contracts on the principal's behalf with actual authority to do so." (Emphasis

sic.) Id. at ¶ 24. "The Restatement defines 'actual authority' in terms of an expression of

intent by the principal that the agent act on behalf of the principal, along with the

understanding of the agent." Id.

       {¶ 18} CIT asserts that R.C. Chapter 339 as a whole creates an agency relationship

between the county and the Hospital Trustees. As such, CIT argues that because R.C.

339.06(F) specifically excludes the county from being liable when a board of hospital trustees

contracts a line of credit, the county is liable in all other instances for contracts entered by the

Hospital Trustees. CIT, however, fails to take into account the authority, or lack thereof, of

the Hospital Trustees as a county board.

       {¶ 19} County boards, being creatures of statute, have no more authority than that

specifically conferred or clearly implied by statute. In re Guardianship of Spangler, 126 Ohio

St.3d 339, 2010-Ohio-2471, ¶ 17. Implied powers are those that are incidental or ancillary to

an expressly granted power; the express grant of power must be clear, and any doubt as to

the extent of the grant must be resolved against it. Id., citing State ex rel. A. Bentley & Sons

Co. v. Pierce, 96 Ohio St. 44, 47 (1917).

       {¶ 20} In this instance, it is undisputed that the Hospital was created as a county

hospital pursuant to R.C. Chapter 339. Under this chapter, the Brown County Hospital

Appointing Authority, consisting of the Board of Commissioners, the probate judge, and the

common pleas court judge, appoints the Hospital Trustees to manage, control, and operate

the Hospital. R.C. 339.02 and 339.06. The Hospital Trustees "ha[ve] control of the property

of the county hospital * * *." R.C. 339.06(C).

       {¶ 21} Nowhere within R.C. Chapter 339 is the board of hospital trustees granted

authority to bind the board of county commissioners or the appointing authority for its

contracts and subject the county's general fund to payment of those contracts. As such, and
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despite R.C. 339.06(F), R.C. Chapter 339 as a whole does not create a principal/agent

relationship between the Board of Commissioners and the Hospital Trustees.

       {¶ 22} CIT relies upon two cases to support its position that a principal/agent

relationship exists between the Board of Commissioners and the Hospital Trustees. CIT

argues that Wierzbicki v. Carmichael, 118 Ohio App. 239 (8th Dist.1963), stands for the

proposition that a board of hospital trustees acts as an agent of the county that creates it.

CIT also supports its argument with Versatile Helicopters, Inc. v. City of Columbus, Ohio, 548

Fed.Appx. 337 (6th Cir.2013), in which a city was held liable for breach of a contract that was

entered into by an agent of the city. We find these cases distinguishable.

       {¶ 23} In Wierzbicki the Eighth District observed that statutes provide the board of

county commissioners authority to establish a hospital and that a "board of trustees of the

Hospital, as an agency of the county, owes a duty only to the public in the exercise of its

trust." Based upon the foregoing, the Eighth District found that a county hospital enjoys the

privileges of sovereign immunity. Wierzbicki at 243. The use of the word "agency" in

Wierzbicki, however, is not used in the context of a principal/agent relationship and the term

"principal" is never used. Id. Rather, the word "agency" is referring to a public hospital as an

institution and administrative division of the government similar to a county board of

developmental disabilities. See id. Wierzbicki is not authority for the proposition that a county

hospital is an agent of the county.

       {¶ 24} Versatile Helicopters stands for the proposition that it is appropriate to look

outside the four corners of a contract in order to determine whether a principal/agent

relationship exits. Versatile Helicopters at 340. In Versatile Helicopters, the city of Columbus

entered into a marketing agreement with Air Flite to act as agent and broker to sell one of the

city's helicopters. Id. at 339. When an offer was made by Versatile Helicopters to purchase

the helicopter, Air Flite stated that it would have to take the offer to the city and the city's
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Deputy Safety Director accepted the purchase on the city's behalf. Id. The purchase

agreement was breached when the helicopter was delivered in an unsafe condition. Id. The

court in Versatile Helicopters found the city liable on the purchase agreement as the principal

even though the purchase agreement was signed only by Air Flite, but not the city. Id.2

         {¶ 25} In this instance, unlike Versatile Helicopters, there was not a specific agency

agreement entered into between the Board of Commissioners and the Hospital Trustees, nor

was there explicit acceptance by the county. Rather, the Forbearance and Assignment and

Assumption Agreements are both clear in language that CIT looked exclusively to the

Hospital for satisfaction of terms. The Forbearance Agreement identified "Brown County

General Hospital" as the debtor. The Assignment and Assumption Agreement stated that

CIT consented to the assignment and acknowledged the Forbearance Agreement. The

Assignment and Assumption Agreement was between Southwest, CIT, and the Hospital.

There was no mention of the county or that county approval was necessary. Additionally, a

letter from the Hospital's counsel stated: "BCGH has been duly authorized by its board of

trustees to enter into the Leases and to carry out the obligations thereunder and the

transactions contemplated thereby." (Emphasis added.) Consequently, as indicated to CIT,

the authority of the Hospital to enter the leases rested with the Hospital Trustees, not the

Board of Commissioners.

         {¶ 26} In any event, regardless of whether an agency relationship was created, the

leases were void as to the county because the necessary statutory prerequisites to create a

valid contract binding the county were not satisfied. Courts must strictly construe specific

statutory provisions designed by the legislature to safeguard public funds. Cleveland

2. In addition to the city entering an agency agreement with a third party to sell the city's helicopter, it is likely that
the city was not subject to the same laws applicable to counties. As a charter municipality, the city was free to
determine its own contracting standards. See Dies Elec. Co. v. City of Akron, 62 Ohio St.2d 322 (1980).
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Trinidad Paving Co. v. Bd. of Cty. Commrs. of Cuyahoga Cty., 15 Ohio App.3d 66, 69 (8th

Dist.1984). Contracts made in violation or disregard of statutes are void and courts generally

will not aid in enforcing such contracts, directly or indirectly, but will leave the parties where

they have placed themselves. Iberis v. Mahoning Valley Sanit. Dist., 11th Dist. Trumbull No.

2000-T-0036, 2001 WL 1647184, *3 (Dec. 21, 2001), citing Buchanan Bridge Co. v.

Campbell, 60 Ohio St. 406 (1899), syllabus. "A party entering into a contract with a

governmental agency must ascertain whether the contract complies with the Constitution,

statutes, charters, and ordinances as far as they are applicable or that party will perform at

his peril." Id., citing Lathrop Co. v. Toledo, 5 Ohio St.2d 165, 173 (1966).

       {¶ 27} R.C. 305.25 provides:

              No contract entered into by the board of county commissioners,
              or order made by it, shall be valid unless it has been assented to
              at a regular or special session of the board, and entered in the
              minutes of its proceedings by the county auditor or the clerk of
              the board.

Additionally, R.C. 5705.41(D)(1) states that a contract is void if it is made without an attached

certificate of the fiscal officer of a particular subdivision stating that "the amount required to

meet the obligation * * * has been lawfully appropriated for such purpose and is in the

treasury or in process of collection to the credit of an appropriate fund free from any previous

encumbrances." Id.

       {¶ 28} In this instance, there was no approval of the leases by the Board of

Commissioners. While the Board of Commissioners approved the Hospital's 2008 operating

and capital budgets, the budgets were general in nature. The budgets were based on the

inclusion of the MRI machine and building. However, the only mention of the MRI machine

and building in the actual budgets was in regards to depreciation. Such an approval of a

general budget of a county hospital does not equate to assenting to the leases of the MRI

machine and building at a meeting of the Board of Commissioners. Additionally, there was
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no certificate attached to the leases from the fiscal officer of the Hospital or the county with

the amount required to meet the obligation under the leases. Consequently, the leases were

void as to the county due to a lack of compliance with the foregoing statutory prerequisites.

       {¶ 29} In light of the foregoing considerations, in our de novo review, we find that

Brown County is entitled to judgment as a matter of law because no agency relationship

exists between Brown County and the Hospital Trustees. Even if such a relationship did

exist, the proper procedures were not satisfied in order to bind the county to the contracts,

and thus we need not address whether such a relationship was created implicitly by conduct.

CIT's two assignment of errors are overruled.

       {¶ 30} Judgment affirmed.

       HENDRICKSON, P.J., and PIPER, J., concur.

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