On April 26, 2022, the Supreme Court of Ohio handed down a merit decision in this case. Read the analysis here.
“In all the cases you are talking about, name one case where the public official has been held liable or responsible who had no control over the funds.”
Justice Stewart, to the Deputy Solicitor General
“If this was codifying the common law, wouldn’t the statute say, ‘control of funds?’”
Justice DeWine to counsel for Robert Burns
On June 30, 2021, the Supreme Court of Ohio heard oral argument in State, ex rel. Ohio Attorney General v. Robert Burns, et al., 2020-1078. At issue in this case is whether Ohio public officials can be held strictly liable for misappropriated public funds after just “receiving or collecting” the money or if control is also required.
Case Background
From August 2009 – June 2010, Robert Burns served as chief executive officer with the title Director of New City Community School—a Dayton charter school. Burns’ contract granted him managerial and supervisory authority over “all personnel employed by the school.” Burns was also authorized to approve budget expenditures from the Ohio Department of Education on behalf of New City. He shared this authority with New City’s chief financial officer, Carl Shye. Once approved, state and federal grants were deposited directly to New City’s account. During the 2009 – 2010 school year, New City received $432,989.57 in funding, but two years later, the Ohio State Auditor discovered that over $50,000 had been misappropriated.
In 2018 and pursuant to R.C. 9.39, the Ohio Attorney General (“the State”) sued Burns and three other defendants, including Shye, for the misappropriated public money. R.C. 9.39 states, in part, that, “all public officials are liable for all public money received or collected by them or by their subordinates under color of office.” The State contended that Burns and his co-defendants, as public officials, were jointly and severally liable for the funds. Burns argued that he never controlled or had the power to distribute funds from New City’s account and thus did not “receive or collect” public money. Both parties moved the trial court for summary judgment. The trial court ruled for the State, finding that Burns took affirmative steps within his official capacity to acquire and bring together public funds to the school. In fact, without Burns filing and signing grant applications, New City would never have received the funds. Therefore, Burns “collected” public money within the meaning of R.C. 9.39 and is strictly liable for the more than $50,000 of misappropriated money. Burns appealed.
The Appeal
In a split decision, the Second District reversed the trial court’s judgment.
The majority first found the phrase “received or collected” in R.C. 9.39 to be ambiguous. The trial court read the “or” disjunctively and separately defined the words “received” and “collected.” From the definition of “collected,” the trial court simply concluded that Burns exhibited control over public funds and was thus liable. But because “collect” (“to claim as due and receive payment for”) uses “receive” in its definition, the two words can also be construed as a unified phrase that defines one single action. Because these two differing definitions are reasonable and R.C. 9.39 does not define the phrase, the statute is ambiguous.
When a statute is ambiguous, courts must discern and apply the intent of the legislature. When the General Assembly enacted R.C. 9.39, it intended to codify the common law rule that public officials are strictly liable only for the loss of public funds that they exercise a degree of control over. In this case, Burns did not ever receive the funds, nor were they subject to his control. Rather, the funds were directed to and controlled by Shye, New City’s CFO. Burns was not Shye’s supervisor, but rather Shye acted independently from Burns. In the absence of any entrustment or control over New City’s funds, Burns cannot be said to “receive or collect” the funds within the meaning of R.C. 9.39.
The dissenting judge would affirm the trial court’s ruling because Burns was “captain” of the New City ship and is strictly liable for all lost funds.
The State appealed.
State’s Proposition of Law Accepted for Review
A public official is liable under R.C. 9.39 if he or his subordinates have “collected” public money on behalf of his public office. One has “collected” public money if he has personally taken actions essential to the public office’s obtaining or receiving the public money, and the office actually receives the public money.
Read the oral argument preview of the case here.
Key Statutes and Precedent
*R.C. 9.39 (Liability for public money received or collected.)(“All public officials are liable for all public money received or collected by them or by their subordinates under color of office.”)
Seward v. National Surety Corp., 120 Ohio St. 47 (1929) (Holding that any public official who either authorizes or supervises an account from which an illegal expenditure is made is strictly liable. Liability attaches by virtue of the public office held. It is the office holder’s obligation to account for and disburse according to law moneys that have come into his hands by virtue of his being such public officer.)
State v. Herbert, 49 Ohio St.2d 88 (1976) (R.C. 9.39 is a codification of the common law “imposing strict liability on public officials for the loss of public funds with which they have been entrusted” or control.)
*Columbia Gas Transmission Corp. v. Levin, 2008-Ohio-511 (The General Assembly’s use of the disjunctive ‘or,’ as opposed to the conjunctive ‘and,’ indicates that the [statutory terms] are intended to be read separately from each other.”)
* Corday v. Int’l Preparatory School, 2010-Ohio-6136 (Interpreting R.C. 9.39 to mean 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.”)
* Cited by counsel at argument.
At Oral Argument
Arguing Counsel
Stephen Carney, Deputy Solicitor General, for Appellant Ohio Attorney General
Janet K. Cooper, Bricker & Eckler LLP, Dayton, for Appellee Robert Burns
State’s Argument
Robert Burns is strictly liable for the public money lost by the charter school he ran. R.C. 9.39 holds public officials liable if they collected or received public funds. “Collected” means something different from “received.” It was Burns’ responsibility to obtain money for his charter school even if he had money sent to a treasurer. Finally, liability is consistent with the common law of over 170 years which has long held officials liable to protect the public even when the official is not at fault.
Mr. Burns was the CEO of the charter school. In that capacity he was registered as the authorized representative to apply online to the Ohio Department of Education for funds. He also submitted expenditure reports showing that they had spent the money. Without Mr. Burns’ involvement, the school could never have received the funds. Once the money was in the account, the account was controlled by the treasurer, who is a separate person reporting directly to the board. It was the treasurer, Carl Shye, who embezzled the money. He pleaded guilty to embezzlement in federal court. But that does not let Mr. Burns off the hook. The state concedes that there’s no case directly on point where liability has been imposed without control, but it is equally true that there is no case where someone was let off the hook for lack of control.
The word “or” is critical in the statute. As this court said in Columbia Gas Transmission, when the legislature uses “or” in the disjunctive, it means both must mean something. If this is a problem, it is for the legislature to fix. To the extent that there was any hole in the system, where the treasurer could misappropriate money or embezzle, strict liability could serve as an incentive for public officials such as Mr. Burns to create systems like dual signature authority. Mr. Burns could have only agreed to take the job if he had secondary check signing authority so that two signatures were required to send money out. The auditor routinely recommends dual check signing authority to local governments. If Mr. Burns isn’t liable here, the public is left holding the bag.
There are lots of times you can receive something when you never applied for it; things just get sent to you. So “received” and “collect” are not like “give” and “bequeath” where they are just two parallel words. “Collect” has to mean something that doesn’t zero out to nothing. Whatever the formula is for collect, it can’t require actual receipt. That’s why control, a word that is not in the statute, doesn’t apply. If, for example, I say I am collecting for charity, here’s the link, the money might go directly to that charity into their bank account, but we still say we are collecting for charity. That’s a common usage.
There are undoubtedly factual situations where a person has both collected and received. But there is a difference between arguing that “collect” is just a subset of “received” with no independent life of its own. If the court adopts a meaning where “collect” includes “receive” we are deleting a word from the statute, when we are required to adopt a rule which gives effect to every term in a statute.
If the statute needs to be softened, to something less than strict liability, the legislature can do that, as it has already done for public school treasurers. They could do that for charter school CEOs if they wanted but they haven’t.
While the state does not think control is required, the trial court and the dissent both said Mr. Burns exerted a form of control when he directed the agency to send the money to a particular account. He directed where it was to go. Mr. Burns should be held strictly liable here. If the legislature wants to change that, that is its job, not the court’s. This court should protect the public put the incentive on someone who can at least do something about it.
Burns’ Argument
This case involves the circumstances under which a public official can be held personally liable for the loss of public funds. This court has consistently held that public officials are liable for public funds that they control. The common law was codified in Ohio in 1985 with the enactment of R.C. 9.39 which reads that all public officials are liable for all public money received or collected by them or their subordinates under color of office. The statute codified the common law and the common law was clear that control of funds was a requirement.
This court has consistently held that public funds under the control of or held by a public official constitutes a trust fund for which the public official as trustee should be held responsible to the same degree as a trustee of a private trust fund. This court reaffirmed this principle in its 2010 decision in Cordray by stating it is firmly entrenched in Ohio law that public officials are liable for the public funds that they control. The label placed on a position is not what dictates the outcome. What matters are the duties of the position. And then the court said what the duties were that result in personal liability—it’s the public official’s obligation “to account for and to disburse according to law monies that come into his or her hands by virtue of being said public officer.” The issue in this case is identical to the issue in the Cordray case on remand. Applying this court’s guidance to the undisputed facts of this case compels the conclusion that Robert Burns is not subject to personal liability for the loss of public funds belonging to New City school. No public monies ever came into his hands by virtue of his employment and having no control he had no obligation or the ability to account for and disburse these funds.
The funding scheme involved here was set up by the Ohio Department of Education. Grant funds are applied for, budgets are drafted, and once the budget is approved there are two clicks of the computer mouse that are required on the Department of Education’s website to approve those expenditures and release the funds directly to the bank accounts. Two authorizations were required-those of Robert Burns and those of the treasurer Carl Shye. This system was set up by the Department of Education, not by Robert Burns. Mr. Burns never directed where the funds were to go. He approved release of the funds, a responsibility he shared with Carl Shye. It is Mr. Burns’ position that the click of that mouse did not constitute “collection” within the meaning of R.C. 9.39. The word “collection” is not defined except as the common law existed at the time that it was codified.
Mr. Burns was not responsible for misspending the funds at issue here, nor did he have any control over them being misspent. He did approve the lawful expenditure of public funds. But he did not then carry those orders out. He had no authority to do that. It was the New City Board of Trustees which gave control over all fiscal matters
New City’s Board of Trustees is the entity that gave control over all fiscal matters of the school including its bank accounts to Carl Shye. The state argues that Robert Burns set it up so the funds would go to New City’s bank accounts. That is incorrect. That was set up by the Board of Trustees and by the treasurer. Nor was Mr. Shye an employee of New City. He was an independent contractor appointed by the Board to serve as the designated fiscal officer for the school pursuant to R.C. 3314.011. At no time did he report to Mr. Burns. At all times he reported directly to the Board. His physical office was not located at New City school. He performed his work on behalf of New City as well as a number of other Ohio community schools from his home in Columbus. There was a lot of chaos associated with Mr. Shye’s activities as treasurer of all community schools which came out later. Ohio wasn’t paid unemployment payments on time, workers’ compensation premiums weren’t paid on time, paychecks for employees were not paid on time, because Shye was shifting money between one community school and another to meet whatever needs were critical at that particular time.
The Attorney General is saying that Robert Burns collected public money when he triggered the release of public funds to the bank account. The Attorney General accuses Mr. Burns of contending that the “collect” and “receive” mean the same thing and of misreading the case law by reading the requirement of control into the phrase “collected” or “received. It was this court, not Mr. Burns, which read the requirement of control into the caselaw. But Mr. Burns does not contend that “receive” and “collect” are synonymous terms. “Collect” is an active verb which encompasses a variety of potential activities while “received” is a passive verb which requires no action in order to possess funds. Both terms do include the concept of possession and control. It is Mr. Burns’ contention that there is overlapping with these two definitions and the phrase “received or collected” embodies the common law rule that public officials are liable for the loss of public funds they control.
It is Mr. Burns’ position that within the meaning of R.C 9.39, if you are collecting something, in order to be liable, you also have to receive it. There is no indication that the legislature intended to alter the requirement of control in enacting R.C. 9.39. It is clear in formal opinions issued by the Ohio Attorney General and bulletins issued by the Ohio Auditor that these two offices have historically understood R.C. 9.39 in exactly the same way that they claim Mr. Burns is mistaken about, namely, that receive or collect means custody or control for personal liability to attach. In a 1994 Opinion, the Ohio Attorney General called the language of R.C. 9.39 plain and unambiguous. He said public officials are held liable only for public money they or their subordinates receive or collect. The phrase “receive or collect” means possession or custody of public money.
In Ohio treasurers are required to be bonded, but people working in positions like that of Robert Burns have no such requirement because they didn’t have any custody or control over public funds.
What Was On Their Minds
Receive or Collect
If I say that you ate or consumed your meal pretty quickly, do those two verbs have different meanings, asked Justice Stewart?
To me the definitions certainly overlap, noted Justice DeWine. They cover two senses of the same thing. There’s nothing proactive about receiving something. Collecting is taking a step to go out and gather things up. There’s no reason we can’t think the legislature wanted to make sure both senses of the word were covered. In ordinary English we use overlapping senses of a word all the time –one’s more specific but when you collect something you also receive it. But that doesn’t necessarily mean the legislature meant to draw this big distinction, does it? The Attorney General has various people that collect money that’s owed to the state. If they collect that money is that person going to be on the hook if down the road someone else in the AG’s office misspends that money?
Where is “collection” defined, asked Chief Justice O’Connor? If you collect something it doesn’t necessarily mean it is going to be under your control, she added. Take the example of a GoFundMe request on the internet; that money doesn’t go to you. There’s a bank account that people send it to and you are not touching it. You’re just putting out the request for money. In other words, you are trying to collect money to go into an account that is not your personal bank account. Is it Mr. Burns’ position that if you are collecting something in order to be liable you also have to receive it? (answer: yes it was his position).
Is personal liability for the funds the reason that some public officials need to have bonds, asked Justice Brunner?
Control/Supervision
Name one case where the public official has been held liable or responsible who had no control over the funds, asked Justice Stewart. Even the state Auditor, who is now the Attorney General, said in a 2104 bulletin that public officials should be aware that they are personally liable for illegal expenditures of public money. Under Ohio law any public official who either authorizes an illegal expenditure of public funds or supervises the accounts of the public office from which such illegal expenditure is made is strictly liable. The auditor goes on to say public officials controlling public funds or property are liable for the loss. Did Mr. Burns or any of the other directors have any supervisory or control powers or any way to hold Mr. Shye accountable? Who was supervising Mr. Shye? Was he an independent contractor to each board?
Justice DeWine commented that he would be hard pressed to hold some innocent bureaucrat liable just because someone else stole money through no fault of their own and over which they had no supervisory power. He added that the state’s position would make any person at any public institution or government agency who signed any form asking for someone to pay money to that agency liable despite their having no culpability at all in the funds being dispensed. Is just having a signature on a form enough? Later he asked if control is required for liability, why wouldn’t that language be in the statute?
The Common Law
Let’s go back to the common law, said Justice DeWine. Are there cases where someone who had no control over money was held liable under the common law rule? If this statute was codifying the common law, wouldn’t the statute say control of funds?
Robert Burns’ Role
What was Mr. Burns’ role asked Chief Justice O’Connor? Who actually misused the money? How long did it take for the auditor to determine the money was missing? Didn’t Mr. Burns’ duties include the general supervision and the management authority and personnel of the school? He was more hands on than the university president or the grant writer or any of the other examples here, she commented, and he also had the authority to expend budget expenditures on behalf of the school. Plus, he was active with the electronic accounting system that was set up through the Department of Education, was he not? Could Mr. Burns direct where that money would be deposited once the state said you get this money? Because he applied for it? Who made the two mouse clicks to trigger receipt of the money? The Chief added that it sounded to her like Mr. Burns was integral to securing those funds and to directing where they got deposited because that’s what Ohio required. He collected those funds, and he saw that the money went to the bank account of the institution that he was the director for. He’s the one that had to facilitate the transfer of the money from the state to the coffers of the charter school. The statute doesn’t say he had to have sole responsibility, does it?
Getting back to what Mr. Burns could have done, said Justice Stewart, he had no supervisory responsibility over Mr. Shye, he didn’t hire him, his contract was not with him, he didn’t control the funds, what is it that he could have required, what could he have done to better protect the funds? He is bringing in the federal and state monies—arguably, if he didn’t do so he would be derelict in his duties to the school. So, what is it that he could have done that would make him liable for the theft of these funds? Does it matter whether the misappropriated funds had been recouped from the perpetrator? Is there a reason why the misappropriation of funds was not discovered much sooner?
If Mr. Burns participated in the budgeting process, isn’t he designating how those funds are being spent, asked Justice Brunner?
How it Looks from the Bleachers
To Professor Emerita Bettman
I’m going to call this one for Burns, although this looks like a split decision. Justices Stewart and DeWine seemed most sympathetic to Burns’ position that in order to be held liable, he had to exert some kind of control over the funds, and given the way this was set up, he did not. Seemingly significant to Justices Stewart and DeWine were the same things that the court of appeals majority seemed swayed by- that Burns never received the funds, nor were they subject to his control. Rather, the funds were directed to and controlled by Shye, New City’s CFO. Burns was not Shye’s supervisor, but rather Shye acted independently from Burns and Burns reported to New City’s Board of Directors.
The Chief, on the other hand, seemed sympathetic to the Attorney General’s argument that Burns “collected” public money because he took the actions necessary for the charter school to receive the public money (even if it just was a mouse click) and the school did in fact receive the money. Things came to a head toward the end of Burns’ argument when the Chief asked Ms. Cooper if she was saying that if you are collecting something in order to be liable you also have to receive it, and Ms. Cooper said that was exactly what she was saying..
The Chief and Justice DeWine and to a lesser extent Justice Stewart dominated the questioning, so it’s hard to know exactly who shakes out on which side here, but I’m still calling a win for Burns.
To Student Contributor Brandon Bryer
Justice DeWine’s questions spoke directly to the heart of this case. Justice DeWine asked the State, point blank, whether a lawyer in the Attorney General’s office who at one point in time collects funds for the State, would be strictly liable if some unrelated staff member misused those funds in the future. Deputy Solicitor General Carney stood by the State’s position and conceded yes, he even faces strict liability under the State’s reading of the statute. This concession was so shocking that Justice Stewart asked Carney to repeat his “yes” answer. Justices Stewart and DeWine are clearly of the belief that the State’s rule sweeps too broadly and is at odds with the common law understanding of “collect or receive” as codified in R.C. 9.39. Although neither Justices Fischer nor Kennedy spoke at oral argument, I imagine they will both agree. That’s at least four votes against the State’s argument, so ultimately, I believe Burns will prevail.
I thought this was an excellent oral argument with excellent attorneys. I found Deputy Solicitor Carney to be particularly well-versed, articulate, and compelling. Carney helpfully repeated what I believe is the State’s strongest argument – if strict liability is too strict, that is a policy decision for the General Assembly, not the Court. Janet Cooper, counsel for Burns, had excellent rhythm and did a great job flowing back into her argument after questioning from the bench. Cooper emphasized that Burns did not supervise the CFO who stole New City’s funds and noted that “collect or receive” has always meant, whether at common law or in R.C. 9.39, that control of the funds is required. This case is a close call, and I gathered that Chief Justice O’Connor agreed with the State’s arguments. If the Chief can persuade some of her colleagues in conference, the State might win. My sense, however, is that Burns has the better of the argument and will prevail.