TBC Westlake, Inc. v. Hamilton Cty. Bd. of Revision

[This opinion has been published in Ohio Official Reports at 81 Ohio St.3d 58.]

TBC WESTLAKE, INC., APPELLEE, v. HAMILTON COUNTY BOARD OF REVISION;

RHODES, HAMILTON COUNTY AUDITOR, ET AL., APPELLANTS.

[Cite as TBC Westlake, Inc. v. Hamilton Cty. Bd. of Revision, 1998-Ohio-445.]

Taxation—Real property—Valuation of two adjacent office buildings by Board of

Tax Appeals—Board of Tax Appeals’ attorney-examiner’s report is not a

public record — Judicial mental process privilege—Weighing evidence

and granting credibility to witnesses is BTA’s statutory job—BTA’s

determination of basic factual matters affirmed by Supreme Court if

supported by sufficient, probative evidence of record.

(No. 97-646—Submitted September 30, 1997—Decided February 11, 1998.)

APPEAL from the Board of Tax Appeals, Nos. 95-K-1358 and 96-K-167.

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{¶ 1} TBC Westlake, Inc., appellee, filed a complaint with the Hamilton

County Board of Revision (“BOR”) seeking to reduce the true value of its real

property, two adjacent office buildings known as Westlake Center and Lake Forest

Place, for the tax year 1993. Appellant Sycamore Community School District

Board of Education (“Sycamore”) filed a counter-complaint seeking to retain the

value determined by appellant Dusty Rhodes, Hamilton County Auditor. After

receiving testimony and evidence from both complainants, the BOR determined the

true value to be $41,000,000, a decrease from the auditor’s valuation of

$46,388,200. Nevertheless, Westlake appealed the BOR’s decision to the Board of

Tax Appeals (“BTA”).

{¶ 2} At the BTA, Westlake presented the testimony and report of Don T.

Carrelli, a real estate appraisal expert. He described the property as 26.326 acres

containing two glass and steel office buildings totaling 422,361 square feet.

Westlake Center, the older building constructed in 1981 and updated in 1993,

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contains 191,231 square feet on six floors. Carrelli described Westlake Center to

be inferior in design and materials to Lake Forest Place and termed it a lower-than-

average, class-A structure.

{¶ 3} Carrelli described Lake Forest Place as a four- and seven-story

structure containing a gross area of 231,126 square feet. It opened in 1985 and had

been partially updated by 1993. It contains a four-story atrium and, according to

Carrelli, is a good-construction, class-A office building.

{¶ 4} The property also includes a separate bank building with drive-

through bays. The bank was built in 1986 of concrete block with face-brick and

glass-block exterior walls.

{¶ 5} Carrelli employed the three standard approaches to value: the cost,

sales-comparison, and income approaches, placing major emphasis on the income

approach. The cost approach yielded a value of $35,100,000 and the sales-

comparison approach, a value of $34,600,000. Carrelli dismissed these two

approaches as weak and less supportable than the income approach.

{¶ 6} In the income approach, Carrelli judged the property’s most current

rents to be the property’s market rentals and multiplied the rents by the leasable

square footage. Westlake Center’s rental rate was $13 per square foot, and Lake

Forest Place’s rental rates were $14 per square foot. To the potential gross income

of $5,379,746, he applied a fifteen percent vacancy rate. According to Carrelli, the

actual vacancy rate for 1993 for Lake Forest Place was fifteen percent, and,

according to a commercial real estate firm, the average class-A vacancy rate for the

community in 1992 was fifteen to seventeen percent. This calculation produced an

effective gross income of $4,572,784. Carrelli deducted what he considered to be

market expenses of $915,341 to arrive at net income of $3,657,443. He obtained

the capitalization rate of 10.5 percent from a study of suburban office properties

prepared by another commercial real estate firm. Dividing the net income by the

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capitalization rate, he determined the value of the property, via the income

approach, to be $34,800,000.

{¶ 7} In his correlation, Carrelli presented the income approach as the

better-supported approach and concluded that the true value of the subject property

was $34,800,000 as of January 1, 1993.

{¶ 8} Rhodes and Sycamore did not present any valuation testimony to the

BTA. Rhodes had presented the testimony and the “Summary Appraisal Report”

of Thomas O. Willingham and Bradley W. Plummer, real estate appraisers, to the

BOR. The BTA reviewed this report but rejected it. According to the BTA,

Willingham and Plummer did not record the information they relied on to appraise

the property. Moreover, neither individual testified before the BTA; thus, the BTA

could not question them about their report. Finally, the BTA expressed concern

about a $3,000,000 modification the two appraisers incorporated into the value

estimate after they wrote the report.

{¶ 9} In deciding this case, the BTA reviewed Carrelli’s presentation,

rejected appellants’ criticism of his report, and found that it satisfied Westlake’s

burden of proof. The BTA, based on a preponderance of the evidence, found the

true value of the property to be $34,800,000, as concluded by Carrelli.

{¶ 10} In the course of the proceedings, the BTA refused auditor Rhodes’s

request that it distribute to the parties the attorney-examiner’s report prepared for

the BTA. According to the BTA, its practice is to receive for approval a proposed

opinion drafted by the attorney-examiner assigned to hear and recommend a

resolution of the case. The BTA ruled that R.C. 5717.01 does not require it to

release these draft opinions to the parties. It, further, found that it is not an “agency”

expressly governed by R.C. Chapter 119, the Administrative Procedure Act, which

requires an administrative agency to serve examiner recommendations on the

parties to an adjudication. R.C. 119.09.

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{¶ 11} This cause is now before this court upon an appeal as a matter of

right.

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Wayne E. Petkovic, for appellee.

Joseph T. Deters, Hamilton County Prosecuting Attorney, and Thomas J.

Scheve, Assistant Prosecuting Attorney, for appellant Hamilton County Auditor.

Klaine, Wiley, Hoffman & Minutolo and Franklin A. Klaine, Jr., for

appellant Sycamore Community School District Board of Education.

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Per Curiam.

{¶ 12} We reverse the portion of the BTA’s decision that did not value the

separate bank building and remand the case for it to value such building. We affirm

the remainder of the BTA’s decision.

{¶ 13} In proposition of law No. 1, appellants contend that the BTA should

have distributed the attorney-examiner’s report to the parties. They essentially

claim that Ohio’s open meeting and public records laws require this.

{¶ 14} R.C. 5717.01 authorizes the BTA to hear appeals of valuation

complaints, “[to] cause its examiners to conduct such hearing and to report to it

their findings for affirmation or rejection.”

{¶ 15} Appellants do not claim that R.C. 119.09 requires the BTA to serve

its examiners’ reports on the appellants. Indeed, R.C. 119.01, in defining “agency,”

does not identify the BTA as one of the agencies specifically subject to this chapter.

Appellants, however, contend that R.C. 121.22, the Sunshine Law, and R.C.

149.43, the Public Records Law, apply. We conclude, to the contrary, that the

Sunshine Law does not apply to adjudication proceedings at the BTA and that the

attorney-examiner report is exempt from the Public Records Law under the

“judicial mental process” privilege.

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{¶ 16} “Ohio's ‘Sunshine Law,’ R.C. 121.22, requires that public officials,

when meeting to consider official business, conduct those meetings in public.”

State ex rel. Cincinnati Post v. Cincinnati (1996), 76 Ohio St.3d 540, 542, 668

N.E.2d 903, 905. R.C. 121.22(C) provides:

“All meetings of any public body are declared to be public meetings open

to the public at all times. * * *

“The minutes of a regular or special meeting of any public body shall be

promptly prepared, filed, and maintained and shall be open to public inspection.

* * *”

{¶ 17} In Westerville v. Hahn (1988), 52 Ohio App.3d 8, 556 N.E.2d 200,

the Franklin County Board of Commissioners, in an annexation proceeding, had

consulted privately with its staff attorney on the validity of petition signatures. The

Court of Appeals for Franklin County rejected the contention that this meeting

violated the Sunshine Law and refused to invalidate the board’s order approving

the annexation. Judge McCormac, writing for the unanimous court, noted that this

court, in Matheny v. Frontier Local Bd. of Edn. (1980), 62 Ohio St.2d 362, 16

O.O.3d 411, 405 N.E.2d 1041, had held that the term “meeting” in the Sunshine

Law had a different meaning than “hearing” in a former version of the law.

According to the Westerville court, “[t]he term ‘hearing’ was used to refer to

situations where a formal hearing was statutorily mandated. Therefore, even

though a public body must open all its meetings to the public, there is a category of

gatherings, called ‘hearings,’ which do not have to be public.” Westerville at 12,

556 N.E.2d at 205.

{¶ 18} The Westerville court concluded that the annexation proceeding in

that case was a quasi-judicial proceeding because the board needed to provide

notice, hearing, and an opportunity to introduce evidence. The court further

concluded that the hearing fell “into the category of gatherings which are not

meetings and, hence, [do] not fall under the Sunshine Law. The fact that the board

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was deciding a dispute between two outside groups adds force to the conclusion

that the proceeding was quasi-judicial.” Id.

{¶ 19} In Zangerle v. Evatt (1942), 139 Ohio St. 563, 571, 23 O.O. 52, 55,

41 N.E.2d 369, 373, we held that the BTA is a quasi-judicial body when discharging

its adjudication duties. In this task, the BTA conducts hearings in the nature of

legal proceedings, providing notice and an opportunity to introduce testimony

through witnesses. A litigant may appeal to the courts only those administrative

agency decisions resulting from quasi-judicial proceedings. Fortner v. Thomas

(1970), 22 Ohio St.2d 13, 51 O.O.2d 35, 257 N.E.2d 371; M.J. Kelly Co. v.

Cleveland (1972), 32 Ohio St.2d 150, 61 O.O.2d 394, 290 N.E.2d 562. In Rossford

Exempted Village School Dist. v. State Bd. of Edn. (1989), 45 Ohio St.3d 356, 359,

544 N.E.2d 651, 654, we stated:

“Permitting appeal from a quasi-judicial proceeding is based on the premise

that an adjudication has been made by the agency which determines the rights or

duties of parties with conflicting interests — in other words, there is a justiciable

dispute requiring evaluation and resolution. Implicit in this concept is the exercise

of discretion. In Englewood v. Daily (1965), 158 Colo. 356, 361, 407 P.2d 325,

327, the court stated that in deciding whether an act by an administrative agency is

quasi-judicial, the ‘* * * most common test is to determine whether the function

under consideration involves the exercise of discretion and requires notice and

hearing,’ all elements being required to constitute a quasi-judicial act. See, also,

Gross v. Kenton Structural & Ornamental Ironworks, Inc. (S.D.Ohio 1984), 581

F.Supp. 390.”

{¶ 20} The BTA’s adjudication is a quasi-judicial proceeding that settles a

“justiciable dispute requiring evaluation and resolution.” Rossford; Zangerle.

Although the BTA opens its hearings to the public under Ohio Adm.Code 5717-1-

15(D), it, like all judicial bodies, requires privacy to deliberate, i.e., to evaluate and

resolve, the disputes. This privacy frees the BTA from the open pressure of the

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litigants as it contemplates the case. Privacy provides an opportunity for candid

discussion between board members and staff on the legal issues and the facts so the

BTA can reach a sound decision. See Nasrallah v. Missouri State Bd. of

Chiropractic Examiners (Nov. 26, 1996), Mo.App. No. WD51663, unreported,

1996 WL 678640. For these reasons, the Sunshine Law does not apply to

adjudications of disputes in quasi-judicial proceedings, such as at the BTA. See,

also, Angerman v. State Med. Bd. (1990), 70 Ohio App.3d 346, 591 N.E.2d 3.

{¶ 21} Moreover, the hearing examiner’s report to the BTA is not a public

record. R.C. 149.43(A)(1)(o) defines “public record” as “any record that is kept by

any public office * * * except * * * [r]ecords the release of which is prohibited by

state or federal law.” In State ex rel. Thomas v. Ohio State Univ. (1994), 71 Ohio

St.3d 245, 249, 643 N.E.2d 126, 130, we ruled that common-law privileges, such

as the attorney-client privilege, are state laws that prohibit release of public records.

See, also, Woodman v. Lakewood (1988), 44 Ohio App.3d 118, 541 N.E.2d 1084.

{¶ 22} In State ex rel. Steffen v. Kraft (1993), 67 Ohio St.3d 439, 440, 619

N.E.2d 688, 689, we denied permission to a litigant to review a judge’s personal

trial notes because, inter alia, this “would intrude upon a judge’s subjective

thoughts and deliberations, threatening the orderly administration of justice. If

notes were available, counsel could presumably ask the court to explain the notes,

such as why the court recorded some events and not others, or why the trial court

characterized certain events in a certain manner.” This statement describes the

“judicial mental process” privilege.

{¶ 23} United States v. Morgan (1941), 313 U.S. 409, 421-422, 61 S.Ct.

999, 1004-1005, 85 L.Ed. 1429, 1435-1436, provides an early discussion of this

privilege as it pertains to administrative agencies:

“* * * But, finally, a matter not touching the validity of the order requires

consideration. Over the Government’s objections, the district court authorized the

market agencies to take the deposition of the Secretary [of Agriculture]. The

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Secretary thereupon appeared in person at the trial. He was questioned at length

regarding the process by which he reached the conclusions of his order, including

the manner and extent of his study of the record and his consultation with

subordinates. His testimony shows that he dealt with the enormous record in a

manner not unlike the practice of judges in similar situations, and that he held

various conferences with the examiner who heard the evidence. Much was made

of his disregard of a memorandum from one of his officials who, on reading the

proposed order, urged considerations favorable to the market agencies. But the

short of the business is that the Secretary should never have been subjected to this

examination. The proceeding before the Secretary ‘has a quality resembling that

of a judicial proceeding.’ Morgan v. United States, 298 U.S. 468, 480 [56 S.Ct.

906, 911, 80 L.Ed. 1288, 1294]. Such an examination of a judge would be

destructive of judicial responsibility. We have explicitly held in this very litigation

that ‘it was not the function of the court to probe the mental processes of the

Secretary.’ 304 U.S. 1, 18 [58 S.Ct. 773, 776, 82 L.Ed. 1129, 1132]. Just as a judge

cannot be subjected to such a scrutiny, compare Fayerweather v. Ritch, 195 U.S.

276, 306-07 [25 S.Ct. 58, 67, 49 L.Ed. 193, 214], so the integrity of the

administrative process must be equally respected. See Chicago, B. & Q. Ry. Co. v.

Babcock, 204 U.S. 585, 593 [27 S.Ct. 326, 327, 51 L.Ed. 636, 638]. It will bear

repeating that although the administrative process has had a different development

and pursues somewhat different ways from those of courts, they are to be deemed

collaborative instruments of justice and the appropriate independence of each

should be respected by the other. United States v. Morgan, 307 U.S. 183, 191 [59

S.Ct. 795, 799, 83 L.Ed. 1211, 1217].”

{¶ 24} As one of the steps to concluding in State ex rel. Ormet Corp. v.

Indus. Comm. (1990), 54 Ohio St.3d 102, 107, 561 N.E.2d 920, 925, “[t]hat the

decision-maker, must, in some meaningful manner, consider evidence obtained at

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hearing,” we mentioned the Morgan directive that a court may not “probe the

mental processes of the [agency decision-maker].” (Emphasis sic.)

{¶ 25} Several of our courts of appeals have applied the judicial mental

process privilege to administrative decision-makers. In Libis v. Akron Bd. of

Zoning Appeals (1972), 33 Ohio App.2d 94, 97, 62 O.O.2d 146, 148, 292 N.E.2d

642, 645, the court ruled:

“[A]n administrative officer, sitting in a quasi-judicial capacity and required

to reach a conclusion based on evidence presented to him, cannot be called by either

party to the proceedings and examined as to the mental processes in arriving at such

conclusion.” See, also, T. Marzetti Co. v. Doyle (1987), 37 Ohio App.3d 25, 29,

523 N.E.2d 347, 351.

{¶ 26} After reviewing this authority, we conclude that the judicial mental

process privilege, a common-law privilege, is state law that prohibits release of the

attorney-examiner’s report to the parties. Thus, under R.C. 149.43(A)(1), this

report is not a public record.

{¶ 27} This result contrasts with State ex rel. Dist. 1199 v. Gulyassy (1995),

107 Ohio App.3d 729, 669 N.E.2d 487, cited by appellants for support. In

Gulyassy, the Court of Appeals for Franklin County declined to adopt a

“deliberative privilege” exception to the Public Records Act. However, in

Gulyassy, the administrative agency was not adjudicating a dispute; the agency was

preparing proposals advocating amendments to statutes, an executive function.

Thus, Gulyassy could not base an exemption from the Public Records Act in the

common-law judicial mental process privilege as we do here.

{¶ 28} In proposition of law No. 2, appellants contend that the BTA failed

to value the bank building. We agree.

{¶ 29} The Carrelli appraisal report does not specifically mention or value

the building. On cross-examination, Carrelli acknowledged the presence of the

building on the property. He thought he had included the bank’s rental in the

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income approach; moreover, he could not say for sure whether he had included the

bank in the cost approach. The BTA concluded that Carrelli had included the bank

in his income approach, which formed the basis for his final conclusion of value.

Consequently, the BTA found that Carrelli had valued the bank.

{¶ 30} Carrelli set forth the rent roll for Lake Forest Place in his report. The

roll shows a monthly rent of $4,944.69 on a line setting forth a Huntington Bank

lease. Multiplying this amount by twelve months yields an annual rent of $59,669,

the amount reported as annual rent for the bank in Ex. C-1, a 1996 marketing

brochure for the property. Thus, the line in Carrelli’s rent roll evidently refers to

the Huntington Bank Building. This line, however, does not list any square footage

for the building. The rent roll, nevertheless, lists 217,264 square feet as the total

square footage for Lake Forest Place.

{¶ 31} In calculating his income approach, Carrelli multiplied the market

rental of $14 per square foot by Lake Forest’s total square footage of 217,264

square feet, as listed in the rent roll. Since the bank building’s square footage is

not included in this total square footage, we deduce that Carrelli did not apply this

$14 per square foot rent figure to the bank building. Thus, the evidence does not

support his statement and the BTA’s finding that he included the bank building in

his income approach. Accordingly, we reverse the BTA’s decision and remand this

matter to it to value the bank. Cf. Webb Corp. v. Lucas Cty. Bd. of Revision (1995),

72 Ohio St.3d 36, 647 N.E.2d 162.

{¶ 32} Next, in proposition of law No. 3, appellants argue that the BTA

should not have adopted Carrelli’s opinion because he had not satisfactorily

supported it.

{¶ 33} Weighing evidence and granting credibility to witnesses are the

BTA’s statutory job. Wolf v. Cuyahoga Cty. Bd. of Revision (1984), 11 Ohio St.3d

205, 11 OBR 523, 465 N.E.2d 50; Fawn Lake Apts. v. Cuyahoga Cty. Bd. of

Revision (1996), 75 Ohio St.3d 601, 665 N.E.2d 194. We leave determinations of

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basic factual matters to the BTA and affirm its determinations if supported by

sufficient, probative evidence of record. Strongsville Bd. of Edn. v. Cuyahoga Cty.

Bd. of Revision (1997), 77 Ohio St.3d 402, 674 N.E.2d 696. The evidence supports

the BTA’s findings on these asserted errors, and it did not abuse its discretion as to

these claimed errors.

{¶ 34} In proposition of law No. 4, appellants contend that the BTA erred

in attempting to apply a sale of the property, occurring on August 29, 1996, for

$39,800,000, in valuing the property as of January 1, 1993, the tax lien date. The

parties jointly placed evidence of the sale in the record, and Westlake attempted, in

its brief, to factor out inflation to demonstrate that the sale price supported Carrelli’s

conclusion of value. Appellants claim that the BTA incorrectly relied on this sale

as some evidence of value.

{¶ 35} We read the BTA’s treatment of this sale differently than do

appellants. The BTA ruled that the sale was not the best indication of value on tax

lien date. However, the BTA, after first commenting that the sale indicated an

average increase of about three percent per year over Carrelli’s valuation in the

three and one-half years between the sale date and the tax lien date, stated that the

sale did not cause it to reject Carrelli’s opinion. The BTA did not apply the sale to

support Carrelli’s opinion; it applied the sale to dismiss appellants’ suggestion that

it should reject Carrelli’s opinion. In any event, the BTA found Carrelli’s opinion

to be the most reliable evidence of the value of the property on tax lien date. The

BTA has this latitude in weighing evidence. Witt Co. v. Hamilton Cty. Bd. of

Revision (1991), 61 Ohio St.3d 155, 157, 573 N.E.2d 661, 663.

{¶ 36} In proposition of law No. 5, appellants claim that the BTA should

have “adequately” considered a stipulation in an earlier BTA case that expressed a

higher value of the property for tax year 1992 as compared with Carelli’s valuation

for tax year 1993. We disagree.

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{¶ 37} We find that the BTA did not abuse its discretion in weighing the

stipulation as it did. First, the stipulation pertained to previous tax years, and one

of the parties was different. Thus, collateral estoppel would not apply. Hubbard

Press v. Tracy (1993), 67 Ohio St.3d 564, 621 N.E.2d 396. Moreover, according

to Freshwater v. Belmont Cty. Bd. of Revision (1997), 80 Ohio St.3d 26, 29, 684

N.E.2d 304, 307, “[w]hen the BTA makes a determination of true value for a given

year, such determination is to be based on the evidence presented to it in that case,

uncontrolled by the value assessed for prior years.” The BTA would not know what

factors led to the agreement. Did the parties sign the agreement on its merits or for

some collateral considerations? The stipulation settled the value for the years stated

in the stipulation, but did not settle the valuation for subsequent years. See United

States v. Internatl. Bldg. Co. (1953), 345 U.S. 502, 505-506, 73 S.Ct. 807, 809, 97

L.Ed. 1182, 1188.

{¶ 38} Accordingly, we reverse the BTA’s decision as to the bank building

and remand the matter to the BTA for it to value such building. We affirm the

remainder of the decision.

Decision affirmed in part,

reversed in part

and cause remanded.

MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, COOK and LUNDBERG

STRATTON, JJ., concur.

PFEIFER, J., concurs in judgment only.

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