Read an analysis of the argument here.

On April 13, 2021, the Supreme Court of Ohio will hear oral argument in State ex rel. Ohio History Connection v. The Moundbuilders Country Club Company and Park National Bank, 2020-0191. At issue in this case is what constitutes a “good faith offer” in the context of eminent domain and whether a court may weigh competing public interests in determining the necessity of an appropriation.

Case Background

Ohio History Connection (“OHC”) owns the Octagon Earthworks, a property containing ancient Native American earthworks, which it leases to the Moundbuilders Country Club Company (“MBCC”) for use as a private golf course and country club. OHC, which is legislatively authorized to use the power of eminent domain, sought to buy out the remaining term of MBCC’s lease, which expires in 2078, in order to transform the property into a public park. This would make the earthworks eligible for designation as a World Heritage Site. Under a 2003 agreement between OHC and MBCC, the public’s access to the site was extremely limited.

OHC obtained two appraisals of the property. The first appraisal (“the Weiler Appraisal”), valued the leasehold interest at $1,750,000 and the second appraisal(“the Koon Appraisal”) valued the leasehold interest at $800,000. OHC sent MBCC a written offer to purchase the remaining term of MBCC’s lease for $800,000. OHC provided MBCC with a copy of the Koon Appraisal but not the Weiler Appraisal. MBCC rejected the OHC offer.

Subsequently, OHC’s Board of Trustees passed a resolution declaring that OHC’s appropriation of MBCC’s leasehold estate was necessary to transform the property into a public park. OHC filed a petition to appropriate the property, which was granted by Judge W. David Branstool of the Licking County Court of Common Pleas after a 4-day hearing.  Judge Branstool found the appropriation was necessary to achieve a public purpose. Judge Branstool also found that the existence of a higher offer did not make OHC’s initial offer a bad faith offer and that there was no evidence MBCC would have accepted the higher offer had it been made.

MBCC appealed, arguing that the trial court erred in concluding that OHC had negotiated in good faith and had established that the taking was necessary.

The Appeal

In a unanimous decision authored by Judge John W. Wise, and joined by Judges William B. Hoffman and Patricia A. Delaney, the Fifth District Court of Appeals affirmed the trial court’s judgment.

The Fifth District concluded that the trial court did not err in finding that OHC negotiated in good faith because there was relevant, competent, and credible evidence on which to base its judgment. Additionally, noting its limited standard review on the question of necessity, the appeals court found that the trial court did not err in concluding that OHC’s taking was necessary because there was extensive and adequate evidence and testimony to support its conclusion that the present agreement between OHC and MBCC needs to give way “to full public access to these geographic remnants left by the prehistoric Native American inhabitants of this region.”

Key Statutes and Precedent

R.C. 163.01(H)(2) (A public park is presumed to be a public use.)

R.C. 163.01(J) (“Good faith offer” means the written offer that an agency that is appropriating property must make to the owner of the property pursuant to division (B) of section 163.04 of the Revised Code before commencing an appropriation proceeding.)

R.C. 163.04(B) (The appropriating agency, at least 30 days before filing a petition for appropriation, shall provide an owner with a written good-faith offer to purchase the property.)

R.C. 163.05 (An agency that has met the requirements of sections 163.04 and 163.041 of the Revised Code, may commence proceedings in a proper court by filing a petition for appropriation of each parcel or contiguous parcels in a single common ownership, or interest or right therein. The petition of a private agency shall be verified as in a civil action.)

R.C. 163.09(B)(1)(a) (A resolution or ordinance of the governing or controlling body, council, or board of the agency declaring the necessity for the appropriation creates a rebuttable presumption of the necessity for the appropriation if the agency is not appropriating the property because it is a blighted parcel or part of a blighted area or slum.)

R.C. 163.52(A) (The failure of an acquiring agency to satisfy a requirement of section 163.59 of the Revised Code does not affect the validity of any property acquisition by purchase or condemnation.)

R.C. 163.59(C) (Real property to be acquired shall be appraised before the initiation of negotiations, and the owner or the owner’s designated representative shall be given a reasonable opportunity to accompany the appraiser during the appraiser’s inspection of the property. If the appraised value of the property is more than $10,000, the head of the acquiring agency concerned shall make every reasonable effort to provide a copy of the appraisal to the owner.)

R.C. 1743.07 (Certain historical preservation associations or societies may acquire necessary real estate in accordance with R.C. 163.01 to 163.22.)

Pokorny v. Local 310, Inter. Hod Carriers, Bldg. Common Laborers Union, 35 Ohio App.2d 178 (8th Dist. 1973) (For cases involving the taking of property for public welfare, a leasehold interest is considered private property.)

Willard v. City of Columbus, 1979 WL 208913 (10th Dist. 1979) (Statutes conferring the power of eminent domain are strictly construed against the governmental agency.)

Kalain v. Smith, 25 Ohio St.3d 157 (1986) (A party may have “failed to make a good faith effort to settle” under R.C. 1343.03(C) even when he has not acted in bad faith. To determine whether a party has made a good faith effort to settle, a court should consider whether the party has: (1) fully cooperated in discovery; (2) rationally evaluated the risks and potential liability; (3) not attempted to unnecessarily delay any of the proceedings; and (4) made a good faith monetary settlement offer or responded in good faith to an offer by the other party.) 

 Worth v. Huntington Bancshares, 43 Ohio St. 3d 192 (1989) (To determine whether a party has made a good faith determination, a court should consider not only the party’s subjective reasoning but also the facts and circumstances surrounding the determination. A good faith determination must at least to some extent be informed by the surrounding circumstances relevant to that decision.) 

Neary v. Board of Zoning Appeals, 1999 WL 960777 (2d Dist. 1999) (When land is leased, the lessee acquires the lessor’s right to the enjoyment and use of the land and becomes the owner of the land for all practical purposes so long as the lease is in force.)

City of Bucyrus v. Strauch, 2000-Ohio-1678 (3rd Dist.) (The Ohio Rules of Civil Procedure are generally considered applicable in appropriation proceedings unless there is a specific procedural conflict.)

City of Huron v. Hanson, 2000 WL 1033034 (6th Dist. 2000) (“The Ohio and United States Constitutions both require that the power of eminent domain be exercised for a public purpose.”)

City of Springdale v. Burns, 2001 WL 1386184 (1st Dist. 2001) (“The purpose of an appropriation award is to compensate the leaseholder for the value of his appropriated interest.”)

Frank v. Nationwide Mut. Ins. Co., 2003-Ohio-4684 (10th Dist.) (Under Ohio law, good faith and bad faith are presented as opposites to each other.)

Willoughby Hills v. Andolsek, 2003-Ohio-323 (11th Dist.) (A trial court’s finding that appropriation is necessary is subjected on appeal to a limited standard of review.)

RMW Ventures, L.L.C. v. Stover Family Invest., L.L.C., 2005-Ohio-3226 (3rd Dist.) (The power to appropriate property for public use is encompassed under the law of eminent domain, and the power is inherent in the state.)

Norwood v. Horney, 2006-Ohio-3799 (Heightened scrutiny must be applied in reviewing any statutes which regulate the use of eminent domain powers.)

Wadsworth v. Yannerilla, 2006-Ohio-6477 (9th Dist.) (The Constitution does not require that a taking be immediately necessary, only that the taking is necessary for a public purpose.)

Dublin v. Beatley, 2016-Ohio-5606 (5th Dist.) (The appropriation of property is a special statutory proceeding governed by R.C. 163 et seq.)

Schaad v. Buckeye Valley Local School Dist. Bd. of Edn., 2016-Ohio-569 (5th Dist.) (“Bad faith” generally implies or involves “actual or constructive fraud, or a design to mislead or deceive another . . . not prompted by an honest mistake as to one’s rights or duties, but by some interested or sinister motive.”)

Sunoco Pipeline L.P. v. Teter, 2016-Ohio-7073 (7th Dist.) (In the context of eminent domain, “[n]ecessity means reasonably convenient or useful to the public; it is not limited to an absolute physical necessity.”)

Votes to Accept the Case

Yes: Justices Kennedy, French, Fischer*, Donnelly, and Stewart.

*Would accept the appeal on proposition of law No. I only.

No: Chief Justice O’Connor and Justice DeWine.

Park National Bank did not file a brief and is not arguing in the Supreme Court case.

 MBCC’s First Proposition of Law Accepted for Review

In an appropriation action, the condemning authority does not meet its burden of making a “good-faith offer” by presenting evidence that it did not act in bad faith in making the offer to purchase. Rather it must show that it acted in good faith, which is more than the absence of bad faith.

MBCC’s Second Proposition of Law Accepted for Review

In order for a condemning authority to show that a taking is necessary for a public purpose, it must show not only that the purpose for which the property is taken is a public one, but it must also show that the taking is necessary for the public purpose by weighing all considerations that impact the public. To do so, the Court may weigh competing public interests.

Moundbuilders Country Club’s Argument

The trial court was wrong in finding that OHC had made a good faith offer to buy out MBCC’s leasehold interest in this case, and wrong in finding the taking was necessary for a public use. The Fifth District improperly applied a bad faith standard to determine whether OHC extended a good faith offer to MBCC. The term “bad faith” is not found anywhere in R.C. 163.04(B), and the Fifth District failed to support its analysis with any cases that relate to eminent domain.

The good faith requirement in R.C. 163.04(B) requires more than a showing of the absence of bad faith. This Court’s precedent outside the eminent domain context indicates that an offer is made in good faith when it is rationally and competently evaluated and made by someone who is reasonably informed.

Applying the appropriate standard, OHC’s offer was not made in good faith because it was neither rationally evaluated nor made by someone who was reasonably informed. OHC’s offer to purchase the lease was based on its CEO’s misunderstanding of the Weiler Appraisal. The CEO was not an appraiser and did not seek guidance from legal counsel or any other expert to help him understand the appraisals. Thus, OHC failed to exercise due diligence, which should be required in this context.

OHC’s failure to comply with R.C. 163.59(C) further illustrates the lack of good faith exhibited by OHC prior to litigation. OHC never informed MBCC of either appraisal, never gave MBCC an opportunity to accompany the appraisers, and never disclosed the Weiler appraisal to MBCC.

The lower courts failed to consider the public interests in the appropriation and, thus, erred in determining that OHC’s taking of MBCC’s leasehold interest was necessary for the public good. This Court’s precedent indicates that competing public interests must be weighed against the stated interest of the appropriating entity.

The inquiry as to whether OHC’s appropriation of the property is necessary should not be limited to whether the taking is for a public use but should include a determination of whether the taking is in the best interest of the public as a whole. Appropriation should only be used as a last resort. As such, appropriation is not necessary here because a majority of OHC’s proposed uses of the property can take place without appropriation.

Limiting the necessity inquiry to a simple public use test could lead to unfair and unjust outcomes for both property owners and the public. If the government only had to show that a taking is for a public use, most takings could not be challenged by property owners. There are also many situations where taking property for a public use would be against the public’s interests. For example, it would be against the public interest for the state to transform a shopping mall with hundreds of employees into a public park.

OHC’s taking of MBCC’s property would not be in the public’s best interest. MBCC’s control of the property provides numerous benefits to the public which would all be lost after appropriation. MBCC has also taken excellent care of the property for over one hundred years while OHC has not properly maintained a similar property nearby.

The true purpose of OHC’s appropriation is to apply for a World Heritage designation, which may not be approved. The government cannot appropriate private property for a contemplated or speculative use in the future. It is not in the public’s best interest to lose the benefits of MBCC’s control of the property for a chance that the property will be designated a World Heritage site.

Ohio History Connection’s Argument

OHC made a good faith offer to purchase MBCC’s leasehold estate when it made an offer based on an appraisal conducted by a qualified, independent appraiser. Under R.C. 163.04, an acquiring agency must provide the property owner with a written good faith offer that is accompanied by the appraisal on which the offer is based. The statute requires nothing more. It does not require the duty to provide all previously obtained appraisals.

The question of good faith under R.C. 163.04(B) is objective. If the appropriating agency’s offer is supported by an appraisal performed by an independent, qualified appraiser, it is a good faith offer. That is just the beginning of a process.  If the parties cannot agree on a price, the jury will decide the amount of compensation the landowner should receive.

However, whether this Court applies an objective or subjective standard, OHC’s offer was made in good faith. Objectively, OHC complied with R.C. 163.04’s statutory requirements. OHC provided MBCC with a written good faith offer and attached the appraisal on which the offer was based. Subjectively, all of the available evidence shows that OHC acted in good faith.

MBCC’s argument that OHC proved the absence of bad faith rather than the presence of good faith disregards the Revised Code’s definition of a “good faith offer,” which is simply an offer supported by the appraisal of a qualified independent appraiser. Additionally, MBCC’s own argument fails to observe the distinction between good faith and the absence of bad faith. In implying that OHC concealed the Weiler Appraisal because it was higher than the Koon Appraisal, MBCC alleges that OHC acted in bad faith as opposed to alleging OHC failed to act in good faith. Additionally, both the trial court and the appeals court accepted the explanation of the CEO of OHC that he misunderstood the specifics of the Weiler Appraisal, which valued the entire fee and the leased fee, and not simply the value of the lease itself. 

The cases on which MBCC relies do not support its argument that a good faith offer may not be speculative or uninformed. These cases did not analyze what constitutes a good faith offer in the context of eminent domain. Even if these cases were relevant here, OHC’s offer would satisfy their test. The offer was supported by an independent appraisal conducted by a qualified appraiser and, thus, was neither speculative nor uninformed.

Pursuant to R.C. 163.52, OHC’s failure to comply with R.C. 163.59(C) does not render its offer invalid. Moreover, any errors OHC made in evaluating the appraisals have been rendered moot by OHC’s subsequent higher offer to purchase MBCC’s leasehold. MBCC’s refusal to accept OHC’s subsequent higher offer shows that any errors OHC made with respect to its initial offer were harmless. MBCC would not have accepted a higher offer had OHC made one.

MCBB is also incorrect when it argues that the acquisition of the property was not necessary to advance a public use. The resolution adopted by OHC’s Board of Trustees conclusively establishes that OHC’s appropriation is necessary to accomplish a public purpose. The creation of a public park is presumed to be a public use. And a board’s resolution declaring the necessity of an appropriation creates a rebuttable presumption that the taking is necessary. MBCC failed to rebut either the presumption of public use or the presumption of necessity.

MBCC asks the Court to determine the meaning of “public use” by weighing the benefits that the public would derive from different, competing uses of a property. However, MBCC has failed to identify a single Ohio court that has adopted this type of weighing analysis.

MBCC’s argument that OHC’s taking is not necessary because some of OHC’s proposed uses could take place while the property is operated as a private club also fails. Ohio law does not require an appropriating agency to show that the acquisition is absolutely necessary. It is sufficient that the use is reasonably convenient or useful to the public.

Here, there is sufficient evidence to show that OHC’s acquisition is reasonably necessary and convenient to the public. OHC intends to create a public park, expand public access to the Earthworks, conduct research, and nominate the Earthworks to the World Heritage List. None of this will be possible if the property remains a private country club. Furthermore, MBCC’s suggestion that all of OHC’s plans for the property depend on a successful World Heritage designation is incorrect. Even without that designation, it is OHC’s intention to convert the site into a public park.

OHC’s  First Proposed Counter-Proposition of Law

An appropriating agency makes a good-faith offer when it offers to purchase property for the fair-market value as determined by a qualified, independent, and impartial appraiser.

OHC’s Proposed Second Counter- Proposition of Law

An agency that passes a resolution declaring that the acquisition of property through the use of eminent domain is necessary is entitled to a rebuttable presumption as to the necessity of the acquisition and a landowner bears the burden of overcoming that presumption.

Student Contributor: Madeline Pinto