Opinion
No. 88-2776.
Decided June 12, 1989.
Keith L. Mitchell, John P. Worcester, Delores J. Anderson and David R. Taylor III, for plaintiffs.
Jack G. Fynes, Sheldon M. Rosen and Joseph Goldberg, for defendants.
I
On April 19, 1989, this court notified counsel that pursuant to Civ.R. 12(B) defendants' motion to dismiss would be considered as a motion for summary judgment. All parties were allowed to present additional documents until May 19, 1989. No supplemental filings were received from either party and the defendants' motion is now ripe for resolution.
This is a taxpayers' action brought by plaintiffs, Model Neighborhood Residents Association and five individuals, against the mayor, city manager, individual council members of the city of Toledo, and the Toledo-Lucas County Convention and Visitors Bureau ("Convention Bureau"). Plaintiffs seek a permanent injunction to prevent certain funds from allegedly being spent to finance construction of the SeaGate Centre and also request a declaratory judgment regarding ownership of those funds.
Ohio law permits taxpayers' actions in certain circumstances. The statutes anticipate a series of events. R.C. 733.56 authorizes a city law director to apply for injunctive relief to restrain "the misapplication of funds of the municipal corporation" or "the execution or performance of any contract made in behalf of the municipal corporation in contravention of the laws or ordinance[s] governing it * * *." When the law director fails to take action seeking injunctive relief, a taxpayer is allowed to file a lawsuit under R.C. 733.59, the section on which plaintiffs rely here. R.C. 733.59 provides as follows:
"If the village solicitor or city director of law fails, upon the written request of any taxpayer of the municipal corporation, to make any application provided for in sections 733.56 to 733.58 of the Revised Code, the taxpayer may institute suit in his own name, on behalf of the municipal corporation. * * *"
This suit was instituted after the Law Director for the city of Toledo denied a request for relief. Through this action, plaintiffs expect to block what they consider the use of city funds to finance a convention center in contravention of Section 79 of the city of Toledo Charter which states in pertinent part:
"* * * [N]o convention center, exhibit hall, sports arena, or municipal theater shall be constructed, acquired, or leased unless the ordinance or resolution authorizing construction, bidding, acquisition, or leasing shall have been approved by a majority vote of the electors voting thereon * * *."
In this lawsuit, plaintiffs claim that defendants violated this section by helping to finance the SeaGate Centre without the approval of the voters beforehand.
Defendants, in their motion to dismiss (now considered as a motion for summary judgment), made three arguments: first, that the one-year statute of limitations bars this action; second, that the defendants did not, as a matter of law, violate Section 79 of the city charter; and third, that Section 79 of the city charter does not even apply to this particular lawsuit.
Under the standard established in Harless v. Willis Day Warehousing Co. (1978), 54 Ohio St.2d 64, 66, 8 O.O.3d 73, 74, 375 N.E.2d 46, 47, summary judgment should be rendered only when there is no genuine issue as to any material fact, the moving party is entitled to judgment as a matter of law and reasonable minds could only conclude adversely to the nonmoving parties, who are entitled to have the evidence construed most favorably for them.
The undisputed chronological facts will be summarized to show the history of both the contested funds and the underlying agreements related to those funds.
II
In December 1983, the city of Toledo received a Federal Urban Development Grant ("UDAG") in the amount of 7.65 million dollars (later reduced to 7.4 million) from the United States Department of Housing and Urban Development ("HUD"). All the terms and conditions for the expenditure of the funds were set forth in a UDAG grant agreement. The Radisson Hotel's construction was to be partially financed by transfer of the grant funds to the Toledo-Lucas County Convention and Visitors Bureau, Inc. ("Convention Bureau"). The Convention Bureau had been incorporated on February 12, 1982 as a private, nonprofit corporation organized to operate a convention and visitors bureau in Toledo. It now owns SeaGate Centre and leases from Lucas County the property on which the convention center stands. The Convention Bureau, in turn, was expected to loan the UDAG funds it had received to the Toledo Convention Hotel Company, a limited partnership ("hotel developers").
On January 21, 1986, Toledo City Council passed Ordinance No. 46-86 which authorized the city manager and the director of community development to negotiate and execute a "Redevelopment Agreement" with the Convention Bureau and other parties to provide for redevelopment of a central business district.
On the same day, a UDAG loan agreement was executed by the city of Toledo with the Convention Bureau and hotel developers. Within the UDAG loan agreement, the city of Toledo agreed to transfer the grant funds to the Convention Bureau. In exchange for the UDAG loan, the hotel developers executed a mortgage note in favor of the Convention Bureau. This UDAG note provided that interest would not accrue and payments of principal or interest would not be due until June 1, 1989 when the twenty-five-year quarterly payments to the Convention Bureau were to begin. The money the hotel developers will pay back in these quarterly payments is referred to as the "repayment proceeds."
Six months later on July 17, 1986, a Redevelopment Agreement was executed by the city of Toledo, the hotel developers, the Convention Bureau, the University of Toledo and the Greater Toledo Office of Tourism and Conventions. This agreement required the Convention Bureau to use UDAG loan repayment proceeds to retire the special revenue bonds it had issued to finance construction of SeaGate Centre.
Plaintiffs object to this use of the repayment proceeds.
III
Defendants maintain that this is a lawsuit to enjoin performance of the Redevelopment Agreement. If so, the lawsuit would be barred by R.C. 733.60, the one-year statute of limitations, which provides as follows:
"No action to enjoin the performance of a contract entered into or the payment of any bonds issued by a municipal corporation shall be brought or maintained unless commenced within one year from the date of such contract or bonds."
The Redevelopment Agreement was entered into on July 17, 1986 but the complaint was not filed until September 6, 1988, over two years later.
Plaintiffs, on the other hand, characterize this lawsuit as one for "misapplication of funds," stating that they oppose the "scheme" for financing the SeaGate Centre and arguing that the city should not be allowed to do indirectly what it is forbidden to do directly. They contend that citizens must authorize any expenditure of funds for construction of a convention center; otherwise, there is "misapplication of funds." A suit for misapplication of funds is not governed by the one-year statute.
In Dehmer v. Campbell (1933), 127 Ohio St. 285, 188 N.E. 6, cited by both parties, the same argument was made. In Dehmer, a taxpayer sued to enjoin payment to Mr. Dehmer of $984 for services he had performed under three city contracts. The suit to restrain misapplication of funds was not filed until thirteen months after the contracts had been executed. In dismissing the case, the court found that if payment of money is necessary for the performance of a contract, an injunction to restrain "misapplication of funds" is nothing less than an injunction of that contract.
Here, we must also determine if the contract requires the repayment proceeds to be used in the contested fashion. Paragraph 2(i) of the Redevelopment Agreement states as follows:
"(i) CVB shall use all Program Income received by CVB in accordance with Grant Agreement including such community and economic development activities which would be eligible for assistance under Title I of the Act, as defined in the Grant Agreement (the `Act'), and in particular, as CVB has determined, for the purpose of paying the Special Revenue Bonds." (Emphasis added.)
"Program Income" is defined in Section 1.03(13), Article I of the Redevelopment Agreement in pertinent part as: "* * * (ii) the repayment proceeds (including principal and interest) of any loan made in whole or in part with grant funds."
Although plaintiffs try to sidestep the plain meaning of the words, the language is clear: the Convention Bureau "shall use all Program Income * * * in particular * * * for the purpose of paying the Special Revenue Bonds."
Plaintiffs argue that it isn't a contract they seek to enjoin, but simply the intended use of "city funds." A recent Lucas County case is cited for their proposition that city funds are at issue here. State, ex rel. Jacob, v. Hawkey (Jan. 13, 1989), No. 88-0979, unreported. In that mandamus action, the court determined that because UDAG grant money loaned to a private developer remained "public money" within the meaning of R.C. 149.011(C), records relating to the loan proceeds were subject to public disclosure. That case, however, does not apply to the instant taxpayers' action.
Furthermore, a good look at the complaint filed in this case undercuts plaintiffs' argument that they are not trying to restrain performance of the Redevelopment Agreement itself. Paragraphs Nos. 11 to 24 of the complaint set forth a statement of facts showing how the Redevelopment Agreement directed the progress of the UDAG funds. In particular, the definition of Program Income includes "repayment proceeds" (Complaint, Paragraph No. 22); Program Income is to be used "[a]ccording to the terms of the Redevelopment Agreement" (Complaint, Paragraph No. 23); the parties to the agreements have performed their obligations, but "TCH has begun, or will shortly begin to repay the loan it received from the CVB; and CVB has begun, or will shortly begin, to use the UDAG loan repayment funds to partially return the Special Revenue Bonds it issued." (Complaint, Paragraph No. 24.)
Most specifically, Paragraph No. 27 of the complaint states:
"Defendants' execution of the agreements described above and their scheduled actions in compliance with the terms of those agreements as they pertain to the use of UDAG loan repayment funds are in violation of Section 79 of the Charter of the City of Toledo."
Thus, any injunction this court would issue to prevent the repayment proceeds from their intended course would also prevent performance of a contracted obligation. The Redevelopment Agreement explicitly requires the Convention Bureau to use the repayment proceeds to pay off the Special Revenue Bonds.
Even though they argue that city funds are being misused, plaintiffs are actually challenging the city's right to contract in the fashion it did. But what exactly did the city do? First, it accepted the UDAG granted from HUD. Then, it transferred the grant money to the Convention Bureau to help construct the Radisson Hotel. Next, it passed an ordinance authorizing the transfer of funds through the UDAG Loan Agreement and further authorizing implementation of a Redevelopment Agreement. The Redevelopment Agreement did three things: it set forth how the city transferred money to the Convention Bureau which, in turn, loaned the proceeds to the hotel developers; it set forth how the Convention Bureau would issue approximately $21 million in Special Revenue Bonds for construction of SeaGate Centre; and it set forth how the Convention Bureau would use the repayment proceeds of the UDAG loan, along with other "Program Income," for retiring the Special Revenue Bonds.
The city did not construct or acquire or lease a convention center. The right to use the UDAG loan repayment proceeds to pay down the revenue bonds comes directly from the Redevelopment Agreement. The contract performance continues while the UDAG loan is repaid and the Convention Bureau retires the bonds with this money. As such, this suit to enjoin use of the funds is within the one-year statute, for it is a suit to enjoin a contract. Dehmer v. Campbell, supra.
The city acted in full view of the taxpayers; no one claims concealment. If plaintiffs had filed their complaint by July 17, 1987 as they were required to do, the other issues could have been addressed more fully. Now it is too late.
Plaintiffs also have no common-law equitable right to restrain defendants in any way. The statutes, R.C. 733.56 to 733.59, provide the exclusive avenue for seeking redress and the time limits imposed by R.C. 733.60 must be followed. Westbrook v. Prudential Ins. Co. of America (1988), 37 Ohio St.3d 166, 524 N.E.2d 485.
IV
This court rules in favor of defendants on the statute of limitations, thereby granting them summary judgment as a matter of law. Whether a violation of Section 79 of the city charter occurred and whether UDAG repayment proceeds are city of Toledo funds which must be used in accordance with the city charter as well as for Title I eligible activities consistent with the Housing and Community Development Act need not be considered.
Despite the attempted characterizations otherwise, this suit remains one to enjoin performance of a contract. In summary, the court finds as a matter of law that this action is time-barred under R.C. 733.60 since it was filed more than one year after the Redevelopment Agreement was executed.
JUDGMENT ENTRY
For the foregoing reasons, defendants' motion to dismiss, which this court has considered to be a motion for summary judgment, is granted.
This case is dismissed with prejudice against all defendants.
Cause dismissed.