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Sheil v. Horton

Court of Claims of Ohio

April 16, 2018


          Sent to S.C. Reporter 5/4/18



         {¶1} The Cuyahoga Community College Foundation is a tax-exempt, nonprofit entity incorporated in 1973 to solicit, receive, and hold public contributions for the benefit of the Cuyahoga Community College (Tri-C). (Court's Exh.[1] at 19-23, Articles of Incorporation.) Tri-C Foundation manages large sums of money in endowments and other accounts, and periodically transfers funds to Tri-C for distribution as scholarships and for other purposes. (Response, Exh. 1 Affidavit of Megan O'Bryan (O'Bryan Aff. I) at ¶ 5-6, 9-10; Sur-reply Affidavit of Megan O'Bryan (O'Bryan Aff. II) at ¶ 7.) The financial and administrative relationships between Tri-C and Tri-C Foundation are detailed in the Articles of Incorporation, the O'Bryan Affidavits, the Tri-C Basic Financial Statements For the Fiscal Years Ended June 30, 2017 and 2016, Note 17 - Discretely Presented Component Unit (Court's Exh. at p. 314-325.), and the Tri-C Foundation Audit for 2017/2016. (Court's Exh. at p. 30-59.)

         {¶2} In June 2017, Tri-C Foundation engaged actress Octavia Spencer to speak at the annual Presidential Scholarship Luncheon fundraiser. (O'Bryan Aff. I at ¶ 13.) On August 21, 2017, requester William Sheil, a reporter for WJW-TV, sent an email to respondent John Horton, Media Relations Manager, Tri-C Integrated Communications Department, confirming "we made a request for the contract between Tri-C and Octavia Spencer for her upcoming appearance at a Tri-C luncheon * * * under Ohio's Open Records Act." (Complaint at 2.) Horton responded that the contract was between Tri-C Foundation and Ms. Spencer and, "[b]ased upon the advice of counsel, the Foundation is unable to provide the contract. Ohio law establishes that the Cuyahoga Community College Foundation is not the functional equivalent of a public entity and is not subject to the Ohio Public Records Act." (Id. at 4.) On September 19, 2017, Sheil filed his complaint alleging denial of access to public records in violation of R.C. 149.43(B). On November 22, 2017, Horton filed his response, adding as a basis for denial that the contract constitutes a trade secret. Sheil filed a reply on January 25, 2018 and Horton filed a sur-reply on February 26, 2018. Horton filed a copy of the contract, under seal, on March 7, 2018.

         {¶3} Ohio's Public Records Act, R.C. 149.43, provides a remedy for production of records under R.C. 2743.75 if the court of claims determines that a public office has denied access to public records in violation of R.C. 149.43(B). The policy underlying the Public Records Act is that "open government serves the public interest and our democratic system." State ex rel. Dann v. Taft, 109 Ohio St.3d 364, 2006-Ohio-1825, 848 N.E.2d 472, ¶ 20. Therefore, the Public Records Act "is construed liberally in favor of broad access, and any doubt is resolved in favor of disclosure of public records." State ex rel. Cincinnati Enquirer v. Hamilton Cty., 75 Ohio St.3d 374, 376, 662 N.E.2d 334 (1996). Claims under R.C. 2743.75 are determined using the standard of clear and convincing evidence. Hurt v. Liberty Twp., 5th Dist. Delaware No. 17CAI050031, 2017-Ohio-7820, ¶ 27-30.

         {¶4} This case presents two issues: (1) whether Tri-C Foundation is subject to the Public Records Act, and (2) if so, whether its contract with a speaker for a fundraising event may be withheld as a trade secret. The evidence establishes (1) that Tri-C Foundation is subject to the Public Records Act, and (2) the speaker contract contains no material that falls under the definition of trade secret.

         Tri-C Foundation is a Public Institution, and Therefore a Public Office

         {¶5} The Public Records Act applies to "records kept by any public office." R.C. 149.43(A)(1). As used in the Act,

"Public office" includes any state agency, public institution, political subdivision, or any other organized body, office, agency, institution, or entity established by the laws of this state for the exercise of any function of government.

(Emphasis added.) R.C. 149.011(A). The mere fact that it is a private, non-profit corporation does not preclude an entity from being a public office. State ex rel. Freedom Communications, Inc. v. Elida Community Fire Co., 82 Ohio St.3d 578, 579, 697 N.E.2d 210 (1998). A private entity is a public institution under R.C. 149.011(A), and thus a public office for purposes of the Public Records Act, when it serves as the "functional equivalent of a public office." State ex rel. Oriana House, Inc. v. Montgomery, 110 Ohio St.3d 456, 2006-Ohio-4854, 854 N.E.2d 193, ¶ 21-26. Under the functional equivalence test, the court must analyze all pertinent factors, including but not limited to:

(1) whether the entity performs a governmental function,
(2) the level of government funding,
(3) the extent of government involvement or regulation, and
(4) whether the entity was created by the government or to avoid the requirements of the Public Records Act.

Id. at ¶ 25. The analysis begins with the presumption that private entities are not subject to the Public Records Act absent a showing by clear and convincing evidence that the private entity is the functional equivalent of a public office. Id. at ¶ 26. No single factor is dispositive - all pertinent factors must be weighed and balanced in each case, mindful of the policy of openness that underlies the Public Records Act. Id. at ¶ 23; State ex rel. Repository v. Nova Behavioral Health, Inc., 112 Ohio St.3d 338, 2006- Ohio-6713, 859 N.E.2d 936, ¶ 24, 38-39.

         Application of Functional Equivalency Test to Tri-C Foundation:

         A. Performance of Governmental Function

         {¶6} This factor asks whether the entity performs a traditionally governmental function. Oriana House at ¶ 28. "Governmental function" includes the provision of a system of public education. R.C. 2744.01(C)(2)(c). Public institutions of higher learning such as Tri-C and its component units are part of this traditional function, including their receipt of funding from the state and other sources. R.C. 3358.08(C); R.C. 3358.09; Ohio Constitution, Article VIII, Section 2(e), (f). "The receipt and solicitation of gifts * * * is an indispensable function of any institution of higher learning." State ex rel. Toledo Blade Co. v. Univ. of Toledo Found, 65 Ohio St.3d 258, 262, 602 N.E.2d 1159 (1992).

         {¶7} Tri-C Foundation solicits and receives public donations, to be distributed as scholarships to persons attending Tri-C and for other purposes benefiting Tri-C. (O'Brien Aff. I at ¶ 5; Court's Exh. at 41.) The Tri-C Foundation thus performs an indispensable sub-function within Tri-C's traditional governmental education function. This factor weighs strongly in favor of Tri-C Foundation's status as the functional equivalent of a public office.

         B. Level of Government Funding

         {¶8} Courts have expressed the level of government funding as the percentage of an entity's total revenues that come from public sources. See Oriana House at ¶ 32; Nova Behavioral at ¶ 32. Respondent asserts that Tri-C Foundation received $227, 268 of contributed services from Tri-C in fiscal year 2017 for "administrative, general, and fundraising expenses." (Response at 6; O'Bryan Aff. I at ¶ 32.) Respondent applies this value against the $9.2 million that Tri-C Foundation collected in contributions, grants, and special events revenue, and claims that government funding was only 2.47 percent. (Response at 6; O'Bryan Aff. I at ¶ 33.)

         {¶9} While contributions, grants and special event receipts are "revenue" as an accounting concept, almost all such revenue collected by Tri-C Foundation is destined for Tri-C. These moneys no more "fund" the Foundation than if they were artworks or real estate physically collected and transferred, intact, to Tri-C. A more meaningful measure of government funding of a fund-raising entity is the percentage of its operational expenses that come from public sources. The Foundation's Statement of Activities for fiscal year 2017 shows expenses for Administration and General $193, 027, Special Events $72, 628, and Fundraising $447, 328, for a total of $712, 983. (Court's Exh. at 38.) Applying the $227, 268 received from Tri-C against this figure, the government funded portion of Tri-C Foundation's operating expenses is a more substantial 32 percent.

         {¶10} Moreover, even using the broad concept of "revenue" as all moneys received, Tri-C Foundation revenues consist mostly or entirely of public money. "Public money" is defined by R.C. 117.01(C) to mean "any money received, collected by, or due a public official under color of office, as well as any money collected by any individual on behalf of a public office or as a purported representative or agent of the public office" (Emphasis added.) "Public money" includes money raised by a nonprofit corporation for a public office. 2016 Ohio Atty. Gen. Ops. No. 2016-013 at *68-70. Under this definition, it appears that 100 percent of Tri-C Foundation's total revenues come from public sources.

         {¶11} Regardless, there is no threshold amount of government funding for an entity to be considered the functional equivalent of a public office. In this case, most or all of Tri-C Foundation's operating expenses are funded by a combination of direct government contributions from Tri-C, and a portion of the public moneys it has collected. Despite any ambiguity as to whether receipt of "public moneys" equates with "public sources, " I find that this factor weighs moderately to strongly in favor of the foundation's status as the functional equivalent of a public office.

         Extent of Government Involvement or Regulation

         {¶12} While Tri-C does not control the day to day activities of Tri-C Foundation, the two are closely intertwined. Tri-C Foundation is co-located with Tri-C in Tri-C facilities, where it is administratively involved with Tri-C by using contributed Tri-C staff time, technological services, office services, and office equipment. (O'Bryan Aff. I at ¶ 25-32.) Tri-C Foundation is listed on the Tri-C web site as a Tri-C Administrative Department.[2] In Tri-C's Organizational Chart, Tri-C Foundation and the Vice President of Development compose a unit directly under the President of the College. (Court's Exh. at 226.[3]) Tri-C Foundation uses Tri-C email addresses through Tri-C servers. The Tri-C Foundation web presence is entirely on the Tri-C web site.[4] Tri-C Foundation apparently has no paid employees of its own. (Court's Exh. at 85; O'Bryan Aff. I at ¶ 30-32; O'Bryan Aff. II at ¶ 10.)

         {¶13} Tri-C Foundation is so fiscally intertwined with Tri-C that it must be reported as "a component unit of" Tri-C in its audit filings. (Court's Exh. at 202, 236). As explained in Tri-C's Basic Financial Statements, Fiscal Years 2017 and 2016, Note 1 - Summary of Significant Accounting Policies:

Component units are legally separate organizations for which the College is financially accountable or for which the nature and significance of their relationship with the College are such that exclusion would cause the College's financials to be misleading. GASB Statement No. 39. Determining Whether Certain Organizations Are Component Units, requires the College to reflect the [Tri-C Foundation] as a discretely presented component unit in the financial statements based on the significance of the relationship with the College. * * *
The economic resources received or held by the Foundation that the College is entitled to or has the ability to access are significant to the College.

(Court's Exh. at 261.) The economic resources that Tri-C "is entitled to or has the ability to access" are received and held pursuant to the purpose stated in Tri-C Foundation's articles of incorporation: "To receive, hold, invest, and administer property of any kind, including money" for distribution to, or for the benefit of, Tri-C. (Id. at 20.) The court is not persuaded by respondent's contrary statement that "[t]he Foundation does not hold funds for the College or in the College's name. (O'Bryan Aff. I at ¶ 8.) In addition to outside donors in 2017, Tri-C Foundation recognized $870, 874 from Tri-C itself in the form of contributions and special events revenue, e.g., external parking revenue and funds for special events sponsorships. (O'Bryan Aff. II at ¶ 9.) The majority of all Tri-C Foundation revenue ultimately becomes available to Tri-C for scholarships and other purposes, in annual amounts determined by Tri-C Foundation. (O'Bryan Aff. I at ¶ 5, 9-12; O'Bryan Aff. II at ¶ 7.)

         {¶14} These entities are involved in other ways. Although respondent asserts that Tri-C Foundation does not currently exercise all of its available corporate functions (Sur-reply at 4; O'Bryan Aff. II at ¶ 6.), the purposes established in the Articles of Incorporation include (in addition to fundraising):

1. To make expenditures for charitable, scientific, literary or education purposes for the benefit of Tri-C, including to make expenditures for any normally accepted function of colleges,
2. To acquire, construct, equip, furnish, repair, remodel, renovate, enlarge, improve, maintain and operate buildings, structures, and facilities, and to acquire real estate in conjunction therewith for the use of Tri-C, its staff, faculty, students, or any organization thereof or related or affiliated thereto,
3. To establish and maintain programs for the purpose of financially assisting, directly or indirectly, by gift, loan, guaranty, or otherwise students attending Tri-C,
4. To engage in and conduct special activities on behalf of Tri-C, its staff, faculty, students, or any organization thereof or related or affiliated thereto.
5. To attempt to influence legislation.

(Court's Exh. at 20-22.) Tri-C and Tri-C Foundation thus have additional, significant areas of mutual involvement available at their discretion. For example, Tri-C Foundation spent $100, 000 to $200, 000 supporting lobbying efforts on behalf of Tri-C in each of fiscal years 2014-2016. (Court's Exh. at 100-102, 137-140, 172-175.)

         {¶15} Finally, Tri-C is guaranteed substantial involvement in the governance of Tri-C Foundation through four ex officio positions for Tri-C officers on the Tri-C Foundation Board of Directors. (O'Bryan Aff. I, Exh. A.)

         {¶16} This factor weighs moderately in favor of Tri-C Foundation's status as the functional equivalent of a public office.

         C. Whether Entity was Created by the Government or to Avoid the Requirements of the Public Records Act

         {¶17} In August 1973, Tri-C's then-Vice President of Finance, Dante Biello, incorporated the Tri-C Foundation. (Court's Exh. at 19-23, Articles of Incorporation.) Biello also signed as the agent for statutory service, giving as the service address, "Cuyahoga Community College District, 2214 East 14th Street." (Id. at 24.) See State ex rel. Luken v. Corp. for Findlay Mkt. of Cincinnati, 2012-Ohio-2074, 972 N.E.2d 607, ¶ 25 (1st Dist.) ("Because the city requested the creation of a nonprofit corporation to manage and operate Findlay Market, we * * * find that the city created CFMC"). There is no evidence that the foundation was created to avoid the Public Records Act.

         {¶18} The broad purposes of the Foundation are exclusively for the benefit of the Board of Trustees of the Cuyahoga Community College District. (Court's Exh. at 19-23.) The articles provide that "[u]pon any dissolution of the corporation all of the corporation's property of every nature and description shall be paid over and transferred to the Board of Trustees of the Cuyahoga Community College District * * *." (Id. at 22-23.) Thus, in its birth, its life, and even in its death, the Tri-C Foundation was created solely to serve Tri-C.

         {¶19} This factor weighs strongly in favor of Tri-C Foundation's status as the functional equivalent of a public office.

         Weighing of Factors

         {¶20} The four primary Oriana House factors all weigh in favor of the Tri-C Foundation as the functional equivalent of a public office. The foundation was created to perform the governmental function recognized in Toledo Foundation, supra, and performs that function with substantial or complete governmental funding. Tri-C is closely involved with Tri-C Foundation in its housing, personnel, technical and other administrative operations, auditing, and governance. By the terms of its incorporation, Tri-C Foundation could not exist apart from Tri-C. In purpose and practice it is an ...

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