Court of Appeals upholds magistrate's decision ordering HAEDC to return property, money to City of Hillsboro
The 10th District Court of Appeals has upheld a magistrate’s decision earlier this year ruling in favor of Highland County Prosecutor Anneka Collins and the City of Hillsboro in a quo warranto case involving the Hillsboro Area Economic Development Corporation, a community improvement corporation founded in 2015 under the tenure of former Hillsboro Mayor Drew Hastings.
A copy of the decision by the 10th Appellate District, sitting by assignment in the Fourth Appellate District, was filed Monday, Dec. 9 by the Highland County Clerk of Courts. According to court documents, the decision “on objections to the magistrate’s decision” was written by Judge Michael Mentel and rendered Dec. 5.
A quo warranto is “a challenge to a person’s authority to hold a public office,” according to Court News Ohio’s legal glossary. Collins told The Highland County Press earlier this year that these actions can only be filed by the Attorney General’s Office or the prosecutor, and the city approached her with the request to file. The Court of Appeals has jurisdiction in these proceedings.
As previously reported, Magistrate Thomas W. Scholl issued a decision Feb. 1 in which he agreed that the City of Hillsboro is “entitled to the return of the monies and property it transferred to and is currently being held by HAEDC related to economic development activities on behalf of the city.”
The HAEDC, represented by attorney Jess Weade, filed two objections to Scholl’s decision in March, as noted in the appellate court entry. The Court of Appeals overruled both objections and ruled that the writ of quo warrants is granted.
“Upon a careful review of the magistrate’s decision, an independent review of the record and due consideration of HAEDC’s objections, we find the magistrate properly applied the law to the facts,” the appellate court decision says. “Accordingly, we overrule HAEDC’s objections and adopt the magistrate’s decision as our own.”
Additionally — in response to the HAEDC’s argument that “the amount and what money or property that was to be returned was not noted” by the magistrate — the Court of Appeals determined the “return of all property and funds under the control of HAEDC for that purpose [to be] the appropriate resolution.”
The HAEDC’s first objection was that “quo warranto is ‘not an appropriate remedy in this case as there is a separate and distinct remedy at law in this matter,’” the appellate court decision says. “HAEDC contends that a quiet title action under R.C. 5303.01 or a petition under R.C. 5303.03 to recover real property offers adequate alternative remedies at law.”
(According to Court News Ohio’s legal glossary, a quiet title action is “a lawsuit filed in a court having jurisdiction over property disputes to establish a party’s title to real property, or to personal property that has a title. It is an effort to ‘quiet’ any challenges or claims to the title.”)
The Court of Appeals ruled this “argument that quo warranto is not the appropriate remedy to be without merit.”
In his decision earlier this year, Magistrate Scholl wrote quo warranto relief could be granted “if the factual circumstances and evidence show that HAEDC was operating as if it were a designated municipal agent for the city, despite the lack of formalities required under R.C. 1724.10 … thereby misusing the franchise that it has.
“The arguments [Collins] has developed do demonstrate that HAEDC was operating as if it were a designated municipal agent for the city … thereby misusing the franchise that it has in order to gain funds and property from the city,” the magistrate wrote. “A review of the records and exhibits submitted show that the city transferred property and money to HAEDC, which would only be permissible had HAEDC been the city’s agent.”
Scholl found that “the HAEDC misused its franchise by operating as if it were an agent for the city under R.C. 1724.10 when it actually was not, and holding onto monies and property transferred to it from the city under the appearance of such agency,” his February decision says. “Therefore, HAEDC has violated R.C. 2733.02(D), which provides that a quo warranto action may be brought against a corporation when it has misused a franchise, privilege or right conferred upon it by law.
“The magistrate concludes that HAEDC’s misuse of its franchise is an offense that, in an action in quo warranto, can be remedied by ousting it from the continuance of such activities.”
The Court of Appeals wrote, “As such, quo warranto is appropriate under the facts of this case.” They added that a quiet title action, “to resolve the allocation of property interests,” or a petition, “for the recovery of real property,” would be “inadequate.
“While the complaint for quo warranto seeks the return of real property, it also concerns the return of money in the possession of HAEDC related to economic development activities and ousting HAEDC from the continued operation as an agent for the city under R.C. 1724.10,” Judge Mentel wrote in the Court of Appeals decision. “Because the relief sought by the [city] exceeds the bounds of a quiet title action under R.C. 5303.01 or 5303.03, [the city] does not have adequate alternative remedy under these statutes.”
Also overruled was the HAEDC’s second objection, which claimed Scholl “failed to state whether the ouster of HAEDC was partial or HAEDC was ousted in its entirety and dissolved as a corporation” and “failed to identify the specific money and property to be returned.”
The Court of Appeals found that “while not expressly stated … we can reasonably conclude that the magistrate recommended a partial ouster of HAEDC rather than a dissolution.
“Concerning what property and funds must be returned, the magistrate’s decision recommended the partial ouster of HAEDC from the continued use and possession of the property and funds in its custody ‘related to the economic development activities it engaged in on behalf of the city, and it must be compelled to return such property and money to the city,’” Mentel wrote in the appellate court decision. “While the magistrate did not identify the exact properties and funds to be returned, HAEDC has failed to assert what, if any, property and funds under its control fall outside the scope of its purpose of economic development for the city. The [city] has also alleged that ‘despite public records requests for financial records and other documents made by the City of Hillsboro to HAEDC, requests have not been fulfilled. As such, HAEDC continues to hide their actions.’
“Given HAEDC’s failure to assert what, if any, property and funds fall outside the purpose of economic development activities it engaged in on behalf of the city, as well as the lack of a full accounting in this case, we find the magistrate’s recommended return of all property and funds under the control of HAEDC for that purpose the appropriate resolution to the relief requested.”
As previously reported, the Hillsboro Area Economic Development Corporation, a community improvement corporation (CIC), was established via council resolution in May 2015 “for the purpose of advancing, encouraging and promoting the industrial, economic, commercial and civic development of the city of Hillsboro.”
In January 2021 — one year into current mayor Justin Harsha’s tenure — Hillsboro city council voted to “withdraw from involvement” in the previous Hillsboro Area Economic Development Corporation and to establish a new CIC, the City of Hillsboro Community Improvement Corporation.
According to that ordinance, when the articles of incorporation for the new CIC were filed and the “establishment of the City of Hillsboro Community Improvement Corporation pursuant to the terms of this ordinance” was finalized, “the City of Hillsboro [would] withdraw from involvement in the Hillsboro Area Economic Development Corporation (HAEDC), and the matters previously entrusted to HAEDC shall hereafter be entrusted to the City of Hillsboro Community Improvement Corporation.”
Collins filed the original complaint April 13, 2022 in the Fourth District Court of Appeals, “seeking a writ of quo warranto ordering the immediate removal of [the HAEDC] as the economic development agent for the City of Hillsboro and the dissolution of the Hillsboro Area Economic Development Corporation.”
According to exhibits and information in the complaint, after council’s vote in January 2021 “to terminate its relationship to” the HAEDC, Harsha — at that point still a member of the HAEDC board — moved at a Feb. 3, 2021 HAEDC meeting to transfer “any property given to the HAEDC by the City of Hillsboro” back to the city. The motion failed, with only Harsha voting in favor.
The next day, Hillsboro safety and service director Brianne Abbott sent a letter to the HAEDC “hereby demanding that the HAEDC cease and desist from any activity pertaining to real estate, monies or assets formerly entrusted by the City of Hillsboro.” Two weeks later, on Feb. 18, 2021, the HAEDC met and voted 4-0 to “remove Mayor Harsha from the board” due to the “discussion at the Feb. 3, 2021 meeting.”
“The [HAEDC] has and is acting without adequate City of Hillsboro represented as required by Ohio Revised Code Section 1724.10(B)(1) and is acting without a designation by the City of Hillsboro pursuant to Ohio Revised Code 1724.10(A) as the agency of the City of Hillsboro for the industrial, commercial, distribution and research development in the City of Hillsboro, and the Hillsboro Economic Development Corporation is not otherwise properly organized as a community improvement corporation,” Collins wrote in the April 2022 complaint.
“The City of Hillsboro cannot exercise its economic development activity … without access to the property and funds held by the [HAEDC], and the City of Hillsboro is entitled to return of the said property and proceeds,” Collins continued. “All property and proceeds received by the [HAEDC] from the City of Hillsboro were given in trust for the sole purpose of economic development in the City of Hillsboro and authority granted to [the HAEDC] by the City of Hillsboro is now withdrawn and vacated, and the trust terminated.”
Oral arguments were held Aug. 10, 2022, and the motion to dismiss was denied in October 2022, according to court records.
Later in October, the HAEDC filed a motion for leave to sell certain real property because the HAEDC “spent all of its funds defending [this] complaint, to date, and, therefore, seeks the Court’s permission to sell several parcels of real property (HAEDC’s only remaining assets) to continue to fund its defense of this case,” they wrote.
Collins responded that “inability to pay is not a reason to stay filing deadlines” and that the property the HAEDC wanted to sell “is actually property that was transferred to the HAEDC by the City of Hillsboro to be used for the benefit of the city.
“Allowing this property to be sold in order to benefit the HAEDC is exactly why the HAEDC should not be in existence,” Collins wrote. “This action by the HAEDC files in the face of common sense and reason.
“There were considerable proceeds in the HAEDC fund initially, most of which was money to be used for the benefit of the City of Hillsboro. The fact that HAEDC has exhausted their funds … is further proof that the HAEDC should be abolished.”
In December 2022, the magistrate denied HAEDC’s motion for leave, after which the HAEDC filed their response to Collins’ initial complaint. In March 2023, Collins filed a reply, and in July 2023, the matter was to be submitted to the magistrate. Scholl then rendered the aforementioned decision Feb. 1, 2024.
For additional background on this case, see the story at: https://highlandcountypress.com/news/magistrate-orders-haedc-return-pro….
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