Opposition Brief — Children's House v. Fisher

Dupree Court,

FILE

JUL 28 WR

OFFICE OF THE CLERK

as

D

No. 91-2071

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1991

THE CHILDREN’S HOUSE,

Petitioner,

Vv.

LEE FISHER,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE OHIO SUPREME COURT

RESPONDENT'S BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

LEE FISHER

Attorney Genera!

MONICA A. MOLONEY

Assistant Attorney General

Charitable Foundations Section

30 East Broad Street, 15th Floor

Columbus, Ohio 43266-0410

(614) 466-3180

COUNSEL OF RECORD

TABLE OF CONTENTS

PAGE

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TABLE OF AUTHORITIES

CASES PAGE

Boys Town v. Brown,

(1982) 69 Ohio St. 2d 1,429 N.E.2d 1171 .......... 3, 4

Children’s House v. Celebrezze,

(1991) 60 Ohio St. 3d 719, 574 N.E.2d 1083 .......... 3

Children’s House v. Celebrezze,

(1992) 63 Ohio St. 3d 1206, 587, N.E.2d 301. ......... 3

Hortonville J.S.D. No. 1 v. Hortonville Ed.,

426 U.S. 462 (TOFS ka kd vee een eee 4

Withrow v. Larkin,

421 U.S. SS (B77) visa 0e ae See ee ee 45

STATUTES

Onio Rev. Code SI1IG0 ..i.s i ease ee 1,5

Ohio Rev. Gode SEIG.O8 . kcckvveusunes seers 1

NO. 91-2071

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1991

THE CHILDREN’S HOUSE,

Petitioner,

Vv.

LEE FISHER,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE OHIO SUPREME COURT

RESPONDENT'S BRIEF IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

STATEMENT OF THE CASE

Petitioner, The Children’s House, timely made application

to the Ohio Attorney General for 1988 and 1989 charitable

bingo licenses, pursuant to Ohio Revised Code (hereinafter

O.R.C.) §2915.08. By letter dated March 10, 1989 from Scott

Lavelle, then Chief of the Attorney General's Charitable

Foundations Section, the Attorney General informed The

Children’s House of his intention to reject its bingo license

application. The notice letter informed The Children’s House

of its right to request a hearing pursuant to O.R.C. §119.06.

The Children’s House requested a hearing, and hearing was

subsequently held before an independent hearing examiner

appointed by the Attorney General. Following the hearing,

written arguments were submitted by counse! for The

Children’s House and by the Attorney General to the hearing

examiner. The Report and Recommendation’ of the hearing

1

The Hearing Examiner's Report and Recommendation and the

Attorney General's Adjudication Order were not included in Petitioner's

Appendix. They are reproduced at A-1 and A-9.

examiner concluding that the application should be rejected

was issued on June 27, 1989. The Children’s House filed

Objections to the Report and Recommendation.

The hearing examiner's Report and Recommendation,

together with the Objections of Tne Children’s House, were

submitted to Loren Braverman, Deputy Chief Counsel for

the Attorney General, for adjudication. Mr. Braverman had

no official involvement with the Attorney Generai’s

investigation of The Children’s House and the proposed

rejection of its bingo license application prior to the

submission of these materials. Mr. Braverman subsequently

issued the adjudication order on behalf of the Attorney

General, rejecting the bingo license application of The

Children’s House on the grounds that the Children’s House

was not a charitable organization’ and that it had violated

specific statutory provisions by the payment of bingo game

operators, payment of excessive rent, and submission of false

information to the Attorney General.

The Children’s House subsequently appealed the

adjudication order to the Clermont County Court of Common

Pleas, which found the Order of the Attorney General to

be supported by reliable, probative, and substantial evidence

and in accordance with law, and that the claims of

unconstitutionality advanced by The Children’s House were

invalid.

The Children’s House appealed this judgment to the Court

of Appeals of Ohio, Twelfth Appellate District. The Court of

Appea!s found that all of the Attorney General's findings were

supported by reliable, probative, and substantial evidence

and were in accordance with law, and that the Court of

Common Pleas had not abused its discretion in upholding

the order of the Attorney General. The Court also found that

2

Although Petitioner indicates that it “vigdrously denied” the

accusations “and contested them both before the examiner and in the

courts,” it stipulated to the facts underlying the determination that it

was nota “charitable organization.” Petitioner also waived oral argument

before the Ohio Supreme Court.

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3

there was no denial of due process in the administrative

procedures used in processing bingo license applications.

A notice of appeal to the Ohio Supreme Court was filed

by The Children’s House. The Ohio Supreme Court granted

the motion to certify the record. Children’s House v.

Celebrezze, 60 Ohio St. 3d 719, 574 N.E.2d 1083 (1991). After

submission of briefs by the parties and oral argument on

behalf of the Attorney General before the Court, the Ohio

Supreme Court dismissed the appeal, sua sponte, as having

been improvidently allowed. Children’s House v. Ce/ebrezze,

63 Ohio St. 3d 1206, 587 N.E.2d 301 (1992).

SUMMARY OF ARGUMENT

The questions presented by the petition are neither novel

nor of sufficient importance to warrant this Court's attention.

The legal issues raised can be easily resolved by application

of this Court's own prior controlling decisions to the fact

situation herein. Further, the decisions below are correct

and ultimately fair to petitioner.

ARGUMENT

Petitioner alleges that its question as to whether a license

issued pursuant to state statute gives rise to a constitutionally

protected property interest is an important question of federal

law that this Court has not but should settle. The fact that

the question has not been resolved by the Supreme Court,

standing alone, is not a recognized basis for the grant of

certiorari. In the present case, there is no need for the Court

to reach this issue. Even should the Attorney General

concede, for purposes of argument, that such a license does

give rise to a protected property interest, petitioner was

afforded all process due by the opportunity tor a pre-

adjudication hearing and subsequent judicial review.

It is arguable that Ohio has interpreted the bingo licensing

statute and the administrative procedure act to recognize

a property interest in a bingo license, so there is no need

for this Court to address the issue. In Boys Town v. Brown

(1982), 62 Ohio St. 2d 1, 429 N.E.2d 1171, the Ohio Supreme

Court held that charities are entitled to a pre-adjudication

hearing, pursuant to O.R.C. 119.06, before an application for

renewal of a charitable bingo license may be rejected by

the Attorney General. This is a matter of state statute and

the interpretation of those statutes by Ohio courts.

Accordingly, it is unnecessary for the court to reach this

question.

Under any standard, petitioner was afforded al! process

due in the administrative hearing process and upon judicial

review. Determination of petitioner's question as to whether

the statutory bingo licensing scheme employed in Ohio

violates the due process clause of the Fourteenth

Amendment to the United States Constitution requires only

the application of this Court's own prior controlling decisions

to the facts of this case. This Court is well familiar with the

requirements of Withrow v. Larkin, 421 U.S. 35 (1975), and

petitioner's question presents no novel issue that requires

this Court to accept jurisdiction for application of the

principles of Withrow to this action.

Petitioner has further alleged that the combination of

investigative, prosecutorial, and adjudicative functions in the

Attorney General constitutes a denial of a fair and impartial

hearing. However, statutes which place such a combination

of functions in one administrative agency have been found

to be constitutional. Hortonville J.S.D. No. 1 v. Hortonville

Ed., 426 U.S. 482 (1976); Withrow v. Larkin, supra. As this

Court noted in Withrow:

It is not surprising, therefore, to find that ‘[t]he case

law, both federal and state, generally rejects the

idea that the combination [of] judging [and]

investigating functions is a denial of due process.

... 2 K. Davis, Administrative Law Treatise §13.02,

p. 175 (1958). Similarly, our cases, although they

reflect the substance of the problem, offer no

support for the bald proposition applied in this case

by the District Court that agency members who

participate in an investigation are disqualified from

adjudicating.

421 U.S. at 52.

Petitioner has attempted to distinguish Withrow by making

the inference that the Attorney General, as an individual,

makes the decision to reject the license apfiication and

subsequently reviews his own decision. This is not an

accurate representation of the procedure. The Ohio

administrative process is structured in such a way that there

is no “decision”, that is, no adjudication order until after

the pre-adjudication hearing. O.R.C. 119.06. Subsequent to

the issuance of the adjudication order, the Attorney General

cannot review his own decision, as review is available only

upon appeal to the courts.

Further, contrary to the implications contained in the

petition, the procedures actually employed by the Attorney

General in the administrative process are such that there

are different levels of determination in the process and no

individual participates in a determination at more than one

level. In this case, the investigation of a bingo license

applicantis initiated and supervised by an Assistant Attorney

General in the Charitable Foundations Section. An attorney's

decision to reject an application is then reviewed by the

Chief of the Charitable Foundations Section and the Attorney

General's Chief Counsel. If approved, the notice of intent

to reject the application is issued by the Chief of the

Charitable Foundations Section. If a hearing is requested,

the hearing is held before a hearing examiner appointed

by the Attorney General. The hearing examiner is not an

employee of the Attorney General but is an independent

contractor engaged in the private practice of law. Indeed,

the Court of Appeals for the Twelfth Appellate District of

Ohio specifically found that the administrative hearing in this

action was conducted before an independent hearing officer.

Finally, the report and recommendation of the hearing officer

and any objections filed thereto are reviewed by a Deputy

Chief Counsel with no prior official involvement in the case.

This Deputy Chief Counsel then issues the adjudication order

on behalf of the Attorney General.

The Attorney General's action rejecting the bingo license

application of The Children’s House was subjected to three

levels of judicial appellate review. The fact that the process ~~

afforded The Children’s House was fair is conclusively

demonstrated by the findings of each court on appeal that

the adjudication order of the Attorney General was supported

by reliable, probative, and substantial evidence and was in

accordance with law. The appellate review process

determined that The Children’s House applied for a bingo

license without qualifying as a charitable organization, that

it violated statutory provisions by the payment of bingo

workers and payment of excessive rent and by presenting

false information to the Attorney General! relating to its bingo

application. The decisions of the courts below are correct.

CONCLUSION

For these reasons, the petition for a writ of certiorari should

be denied.

Respectfully submitted,

LEE FISHER

Attorney General

MONICA A. MOLONEY

Assistant Attorney General

Charitable Foundations Section

30 East Broad St.-15th Floor

Columbus, Ohio 43266-0410

(614) 466-3180

COUNSEL OF RECORD

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STATE OF OHIO

OFFICE OF THE ATTORNEY GENERAL

CHARITABLE FOUNDATIONS SECTION

IN THE MATTER OF: ' Hearing Officer

Jonn L. Tanoury

THE CHILDREN’S HOUSE

REPORT AND RECOMMENDATION

This matter came on for hearing pursuant to Applicant's

request for the same. By letter dated March 10, 1989, the

Attorney General informed Applicant of its proposed

intention to reject Applicant's 1989 bingo license application.

The reasons for this proposed action were stated as follows:

1. Applicant is not a “charitable organization” as

defined in R.C. 2915.02(H). Specifically, applicant is

not, and has not received from the Internal Revenue

Service a determination letter that is currently in

effect, stating that the organization is, exempt from

federal income taxation under subsection 501(a) and

described in subsection 501(c)(3), 501(c)(4), and

501(c)(8), 501(c)(10), or 501(c)(19) of the Internal

Revenue Code. The determination letter submitted

by applicant is not currently in effect because

applicant no longer exists as a corporate entity in

the State of Ohio.

2. Applicant has paid compensation to bingo game

operators Rosanna Stephenson, Richard Nichting,

Carol Sue Bell, Kathy Gee, Marilyn Schroer, and

Edith Reardon, in violation of R.C. 2915.09(B)(1).

3. Applicant has paid rent in excess of $250 per bingo

session and applicant has paid a rental rate that

is more than is customary and reasonable for the

premises thatare similar in location, size, and quality,

in violation of R.C. 2915.09(A)(3).

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4. Applicant has made incorrect or false statements

material to the granting of the bingo license in its

application, in violation of R.C. 2915.08(B)(2)(b).

Specifically, due to the payments made to bingo

game operators, applicant has failed to include al!

bingo proceeds on its income statement and has

also failed to include al! bingo expenses on its

expense statement, in violation of O.A.C. 109:1-3-

02(C)(4) and 109:1-3-02(C\(5)(d) and (i).

5. Applicant has submitted incorrect or false

information relating to an application which is

material to the granting of the license, in violation

of R.C. 2915.08(B)(2)(c). Specifically, applicant has

submitted copies of an IRS determination letter that

is not currently in effect and articles of incorporation

that have expired as a matter of law, in violation

of O.A.C. 109:1-3-02(E)(2),(6) and (7).

6. Applicant has failed to provide the names and

addresses of all principal partners, trustees,

directors or officers of the lessor, in violation of

O0.A.C. 109:1-3-02(B)(3)(d)(vi).

7. The Attorney General has good cause to believe

applicant will not conduct its bingo games in

accordance with R.C. 2915.07 to 2915.12, for the

reasons set forth above.

Applicant timely requested a hearing and the hearing was

conducted on May 24, 1989. The decision will discuss the

various grounds separately.

APPLICANT HAS PAID COMPENSATION TO BINGO

GAME OPERATORS IN VIOLATION OF R.C. 2715.01(B)(1)

The unchallenged, overwhelming and unrebutted

testimony presented at the hearing demonstrated that four

of the Applicant's bingo game operators were paid cash for

working the bingo games. They were paid after each session

they worked and they were paid in a manner so as to avoid

detection. There is no question from the testimony presented

that Richard Nichting, Carol Sue Bell, Rosanna Stephenson,

and Kathy Gee were hired to work the bingo games by the

person in charge of Applicant's game Louise Schroer. (Tr.

pg. 11-12, 28, 39, 52). There is no question that Louise Schroer

told them they would be paid. While Louise Schroer was

clandestine in her method of payment, there is little doubt

that she was in fact paying these bingo game operators.

In spite of the signed statements from each of these

operators that they received payment from Louise Scnroer,

and that Louise Schroer told them they would be paid for

working bingo, Applicant has continued to allow Louise

Schroer to run its bingo games. Applicant has chosen to

ignore the statement's and testimony of five bingo game

workers stating that Louise Schroer paid them for working

bingo games.

In light of the overwhelming testimony of illegal payments

and the total lack of action by the Applicant to remove Louise

Schroer as the operator of the bingo game sessions, doubt

exists as to the purpose and true beneficiary of Applicant's

bingo game.

Applicant, dispite the fact that Louise Schroer was available

and still operating its bingo game did not present her as

a witness in this hearing. It is almost beyond comprehension

that Applicant would not present its person in charge of

bingo to rebut the testimony of illegal payments.

Applicant's argument that since Louise Schroer was not

an officer, employee or director of the organization any

alleged acts by her cannot be imputed to the organization

is without merit as it relates to this litigation. Applicant has

stated in.its application that Louise Schroer is the person

it selected to run the bingo games. Applicant cannot now

argue that illegalities by its hand chosen operator are not

imputable to it.

To hold that an organization is not liable for illegalities

in bingo games conducted by the organization unless a

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current director, employee or officer commits them would

allow for rampant disregard of the regulations without

penalty. All an organization would need to do is select a

non-member to run its game.

Assuming Applicant had no knowledge ofthe biatant illegal

payments it is still responsible for the illegalities conducted

at a bingo game conducted under its license.

Patricia Campbell testified at his hearing. She testified that

for approximately 4-1/2 years she has been president of

the Board of Directors. She testified that she hasn't missed

a Board meeting during this period. (Tr. 109-111). Yet, she

had no idea how long Louise Schroer had been running

the bingo game. She stated that Schroer was there when

she started. She also testified that during her tenure the

records of the Board were in dissaray. She stated that she

relied solely on a former employee to handle these matters

and that employee messed up.

Ms. Campbell had little knowlege of Applicant's lease

arrangements. She had no involvement with its negotiation.

She couldn't explain the different lease submitted to the

Attorney General. She didn’t know who paid utilities.

2

Basically, she presented a picture of a person with little

or no knowlege of major Board matters. Clearly, the

circumstances surrounding the operator of the bingo game,

and the lack of contro! by the Board president presents a

picture of an organization happy to recieve whatever money

this Bingo game operator bestows upon them.

The testimony presented clearly shows that the Applicant's

chosen bingo game operator paid people for working at the

bingo games.

The evidence presented shows that this was done with

knowledge of its illegality and that Applicant has, despite

these illegal payments, continued to allow Louise Schroer

to run its bingo games.

Based upon this evidence alone rejection of the 1989

license was appropriate.

APPLICANT IS NOT A CHARITABLE ORGANIZATION

AS DEFINED IN R.C. 2915.01(H)

R.C. 2915.01(H) provides as follows;

“Charitable organization" means any tax exempt

religious, educational, veteran's, fraternal, service,

nonprofit medical, volunteer rescue service, volunteer

firemen’s, senior citizen's, youth athletic, or youth

atheletic park organization. An organization is tax

exempt if the organization is, and has received from

the Internal Revenue Service a determination letter that

is currently in effect, stating that the organization is,

exempt from federai income taxation under subsection

501(a) and described in subsection 501(c)(3), 501(c)(4),

501(c)(8), 501(c)(10) or 501(c)(19) of the Internal Revenue

Code. To qualify as a Charitable organization, an

Organization, except a volunteer rescue service or

volunteer firemen’s organization, shall have been in

continuous existence as such in this stategior a period

of two years immediately preceding .. . the making of

an application for a bingo license under section 2915.08

of the Revised Code...

Applicant, the Children’s House, was created in August,

1972 by the filing of Articles of Incorporation with the Ohio

Secretary of State. Applicant subsequently applied to the

Internal Revenue Service for exempt status, and was issued

a determination letter on April 27, 1973, recognizing The

Children’s House as a 501(c)(3) organization. The

determination letter issued by the Internal Revenue Service

was issued to The Children’s House as a corporate entity.

At hearing, the Attorney General presented, as Exhibit J,

a document from the Ohio Secretary of State indicating that

the Articles of Incorporation of The Children's House were

cancelled on October 2, 1983.

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Internal Revenue Service Regulation 1.501(a)(1) provides

that an organization that has been determined to be tax

exempt may rely on that determination so long as there are

no substantial changes in the organization's method of

operation.

Applicant's method of operation did in fact undergo a

substantial change in its method of operation when it failed

to continue its operation as a corporation in Ohio.

Revenue Ruling 67-390 details organizational changes that

would necessitate the securing of a new tax exempt

determination. The examples are by way of illustration and

not all inclusive. The four changes cited as examples are:

Case 1. An exempt trust was reorganized and

adopted a corporate form to carry out the same

purposes for which the trust had been estab!ished.

Its operations were not changed.

Case 2. An exempt unincorporated association

was incorporated and continued the operations

which had qualified it for exemption.

Case 3. An exempt organization incorporated

under state law was reincorporated by an Act of

Congress to carry out the same purposes containe

din the state charter.

Case 4. An exempt organization incorporated

under the laws of one state was reincorporated

under the laws of another state with no change

in its purposes.

Applicant's failure to maintain its corporate structure

required it to obtain a new tax exempt determination letter.

Once the structural changes took place its previous tax

exemption letter was no longer current.

There is nothing in the Revised Code that requires the

Attorney General to blindly accept a tax exemption letter

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that it has reason to believe is no longer applicable due

to structural changes in the organization.

- Were this the only reason offered by the Attorney General

for reyecting Applicant's 1989 application this Examiner might

be of the opinion that neglect of filings, unawareness of

requirements and obvious lack of monitoring should result

in a less stringent result.

However, the same reason that led to Applicant losing

its corporate status (lack of any real oversight and control),

permeates this organization. It is seen in Applicant's

Submission of fraudulent leases without any awareness, its

lack of actions against its bingo operator despite

overwhelming evidence of illegal activity, its unawareness

of lease obligations and responsibilities, and its admission

that leases, Bingo Applications and the like were simply

signed without any real inquiry as to the particulars.

Given, Appellant's loss of its corporate identity it was

required to obtain a new tax exempt determination. Its failure

to do so renders the Attorney General’s proposed action

reasonable.

APPLICANT HAS PAID RENT IN EXCESS OF

$250 PER BINGO SESSION

The testimony presented by Applicant's witnesses

demonstrates a total lack of knowledge by the Board as

to details of its lease arrangements. It demonstrated that this

organization clearly lacks a recognition of its responsibilities,

at least as they relate to operating a bingo game. % :

As to the payment of rent in excess of $250 per session,

Applicant's Board president admitted that the reason for

entering a “second” lease for the bingo hall was to get around

the restriction in law that no more than $250 per bingo

session could be paid in rent. (Tr. p. 125-126).

In fact this was about the only detail she new about as

it related to the leases.

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Based upon the testimony and the leases submitted into

evidence it is clear that Applicant entered into leases which

resulted in paying in excess of $250 per bingo session.

The remaining allegation in the Attorney General’s notice

are cumulative, in that the incorrect and false filings are

premised on the conclusion reached regarding the first 3

allegations. In light of my determination on the first 3

allegations, it is my finding that Applicant filed false,

incomplete and misleading statements in its bingo

application.

CONCLUSION

Based upon the foregoing discussion, review of the

testimony and evidence it is my recommendation that

Applicant's 1989 bingo license application be rejected. The

picture that the tesimony and evidence ciearly presented

was one of an organization that buries its head in the sand

when it comes to its responsibilities under the bingo laws

and its content to receive whatever money bingo makes

without regard to the manner of its operation.

John L. Tanoury

Hearing Examiner

CERTIFICATE OF SERVICE

| hereby certify that the original of the foregoing Report

and Recommendation has been served upon William Scott

Lavelle, Chief, Charitable Foundations Section, 30 East Broad

Street, Columbus, Ohio 43266-0344, and copies sent to John

K. Everett, Lumpe and Everett, 37 West Broad Street, Suite

730, Columbus, Ohio 43215 and Monica A. Maloney, Assistant

Attorney General, 1680 State Office Tower, 30 E. Broad Street,

Columbus, Ohio 43266-0410 by first class, U.S. Mail, postage

prepaid, this day of June, 1989.

John L. Tanoury

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IN RE: APPLICATION FOR A 1989 CHARITABLE BINGO

LICENSE OF THE CHILDREN’S HOUSE

The matter of the application of the Children’s House for

a 1989 charitable bingo license, after timely notice and

request for a hearing, was heard before John L. Tanoury,

a duly authorized hearing officer. The hearing examiner

issued and served his report and recommendation on May

24, 1989. Objections to the report and recommendation were

timely filed by counsel for the Children’s House.

Upon consideration of the record and the report and

recommendation of the hearing examiner, and the objections

filed by the Children’s House, the Attorney General concludes

that the Children’s House is not a charitable organization

as defined in R.C. 2915.02(H); has paid compensation to bingo

game operators in violation of R.C. 2915.09(B)(1); has paid

rent in excess of $250 and has paid a rental rate that is

more than is customary and reasonable for premises which

are similar in location, size and quality, in violation of R.C.

2915.09(A)(3)(b); Nas made incorrect or false statements

material to the granting of a bingo license in its application,

in violation of R.C. 2915.09(B)(2)(b); has submitted incorrect

or false statements relating to an application which is material

to the granting of alicense, in violation of R.C. 2915.09(B)(2)(c);

and that the Attorney General has good cause to believe

the Children’s House will not conduct its bingo games in

accordance with R.C. 2915.07 to R.C. 2915.12. Therefore, the

Children’s House is not entitled to a charitable bingo license.

The Attorney General, accordingly, adopts the hearing

examiner's recommendation that the 1989 bingo license

application of the Children’s House be denied.

Therefore, it is ORDERED, ADJUDGED AND DECREED

that the application of the Children’s House for a 1989

charitable bingo license is hereby rejected.

By Order of the Ohio

Attorney General

Anthony J. Celebrezze, Jr.

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LOREN L. BRAVERMAN

Deputy Chief Counsel!

30 East Broad St., 17th Floor

Columbus, Ohio 43266-0410 (614)

466-5026