Further Update: The July 9, 2012 Cincinnati Enquirer reports that the Cincinnati School Board is about to sell at least five more old school buildings. All of these now must first be offered to charter schools.  Thanks to a change in the law, the School Board no longer gets to skip that step if it determines the building is no longer suitable as classroom space.  And, thanks to the Supreme Court of Ohio, no more deed restrictions in these new sales.

Update: The June 18, 2012 Cincinnati Enquirer reports that Roger Conners has been fired as superintendent of two charter schools he founded, including the school he and his mother bought at a public auction.  The Supreme Court of Ohio invalidated a deed restriction in that sale forbidding the use of the property for school purposes. http://news.cincinnati.com/article/20120617/NEWS/306170084/Thousands-receipts-questioned-school-firing. Conners adamantly denies and disputes these charges and filed a lawsuit of his own in response.

Analysis of Merit Decision

On June 6, 2012, the Supreme Court of Ohio issued a merit decision in Cincinnati City School Dis. Bd. Of  Edn. v. Conners,  2012-Ohio-2447.  In a 7-0 decision authored by Justice Lanzinger, in which Justice Pfeifer concurred in the syllabus but dissented in part, the Court held that a deed restriction in the sale of a vacant old public school building put up for sale at public auction, restricting the building from use as a school, was void as against public policy.  Read earlier posts on this case here and here.

In 2009, the Board of Education of the City School District of the City of Cincinnati (CPS) sold nine old unused school buildings at public auction.  Under the law at the time, if old schools were still suitable as classroom space, school boards were obligated to offer them first to charter schools. (officially, these schools are community schools, but they are commonly called charter schools, which is what we shall call them in this post). If not, that step could be skipped and the old buildings sold at public auction.  In this case the CPS decided none of the nine was still suitable as classroom space, so they were put up for sale at auction. The purchase and sale agreements contained deed restrictions that the properties were not to be used for school purposes. 

Dr. Roger Conners and his mother bought the old Roosevelt school at auction for $30,000.  They were the only bidders on that property.  The Purchase and Sale Agreement contained the deed restriction.  Initially, the Conners weren’t sure of their intended use for the building, but later they decided to open their own charter school there, and so advised the CPS.

CPS brought a declaratory judgment action seeking a determination that the deed restriction was valid, and sought to enjoin the Conners from opening a school on the property. The trial court found the deed restriction void as against public policy and the court of appeals affirmed.  The Supreme Court of Ohio affirmed the decision of the court of appeals in this case.

In beginning its analysis, the Court went through a number of basics.  Boards of education are political subdivisions, and are creatures of statute with powers limited to those expressly granted by statute or clearly implied from them.  They do have discretionary power to contract with others.  The freedom to contract is highly important and favored in law. Justice Lanzinger quoted this from past precedent: “The right to contract freely with the expectation that the contract shall endure according to its terms is as fundamental to our society as the right to write and to speak without restraint. ”   

But the Court also noted that the freedom to contract is not absolute, but is “always subservient to the public welfare.”  A narrow public policy exception to the freedom of contract has long been recognized in the law. Carefully delineating the separation of powers, the Court noted that the question of when the public policy exception applies belongs to the courts, but the final arbiter of public policy is the General Assembly.  

 In this case involving a contract between a private party and a political subdivision, the Court found a compelling reason to apply the public policy exception. While school boards have the power to contract, they must always do so with the public interest in mind. And the Court underscored the fact that by definition, charter schools are public schools.  In applying the public policy exception in this case, the Court found that the legislature has clearly signaled a policy preference for helping charter schools, as evidenced by numerous statutes cited in the opinion. That preference is both past and ongoing.

At the time of this sale, school boards were statutorily required to offer old buildings to charter schools first before auctioning them. (the law was changed in 2011 to eliminate the “suitable for use as classroom space” requirement, but the first offer requirement remains).  So, this was one example pertinent to this case, of a restriction on the freedom to contract, and a restriction underscoring the legislature’s “preference for giving charter schools the opportunity to operate out of unused public school buildings.”

The Court also cited the 1997 passage of the Community Schools Act, codified at Chapter 3314, as an additional strong indication of legislative support for charter schools.  As further evidence of legislative intent, in 2001, R.C. 3318.50 and 3318.52 were enacted, to help charter schools acquire buildings at a lower cost, and to supply funds to charter schools to assist them with “acquiring, improving, or replacing classroom facilities for the community school by lease, purchase, remodeling of existing facilities, or any other means including new construction.”

 The opinion also included concerns expressed by Justice Stratton at oral argument—that the deed restriction seemed designed to stifle competition, contrary to the legislative preference for school choice.   

So, the Court held that “the inclusion of a deed restriction preventing the use of property for school purposes in the contract for sale of an unused school building is unenforceable as against public policy.”

Justice Pfeifer agreed with almost everything in the opinion, but thinks the holding should only apply prospectively. It struck him as unfair that the buyers got the property at a reduced price because of the deed restriction, but are now getting a windfall, while the CPS is not receiving full value for the building.  He thinks the fairest way to remedy this is to have the buyers  pay CPS the difference between the purchase price and the fair market value of the property without the deed restriction.

Case syllabus

The inclusion of a deed restriction preventing the use of property for school purposes in the contract for sale of an unused school building is unenforceable as against public policy.

Concluding Observations

The oral argument questioning didn’t particularly signal the result in this case, except for Justice Stratton’s challenge to the CPS about being afraid of competition. The justices did seem put off by what appeared to be a peremptory attitude by the CPS about what it did or did not owe to the charter schools.  But the justices also seemed very concerned at argument about the buyers acquiring property with knowledge of the restriction, but with the apparent intent to ignore it all along. Chief Justice O’Conner, for example, had 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. None of this made it into the Court’s opinion.

This was a clear win for the 1851 Center for Constitutional Law, which argued for the buyers. The Center suffered a recent loss in its attempt to strike down the Smoke Free Workplace Act.