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Graham v. City of Lakewood

Court of Appeals of Ohio, Eighth District, Cuyahoga

May 10, 2018


          Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-15-846212

          ATTORNEYS FOR APPELLANTS A. Steven Dever A. Steven Dever Co., L.P.A. Christopher M. Devito.

          ATTORNEYS FOR APPELLEES For the Cleveland Clinic Foundation and Delos Cosgrove, M.D. Tracy K. Stratford Mariam Keramati James R. Wooley Katie M. McVoy Jones Day.

          For the City of Lakewood and Michael Summers Kevin M. Butler Law Director Jennifer L. Swallow Chief Assistant Law Director, Robert E. Cahill.

          For Ohio Attorney General Mike DeWine Lindsey M. Grant Assistant Attorney General, Kristine L. Hayes Joseph E. Schmansky Associate Assistant Attorneys General.

          For Lakewood Hospital Association and Thomas Gable Jennifer D. Armstrong Ann Hunt McDonald Hopkins, Sara E. Jodka O. Judson Scheaf McDonald Hopkins, L.L.C.

          For Lakewood Hospital Foundation, Inc., and Kenneth Haber Thomas M. Ehrnfelt Walter F. Ehrnfelt Waldheger Coyne Co., L.P.A.

          For Subsidium Healthcare, L.L.C. Aaron M. Bernay Katherine A. Klaeren David C. Olson Frost Brown Todd, L.L.C.

          BEFORE: Blackmon, J., Boyle, P.J., and Laster Mays, J.



         {¶1} Edward Graham, Marguerite Harkness, William Grulich, Deborah Meckes, and Amy Dilzel ("Plaintiffs") filed this lawsuit alleging several causes of action concerning the closing of Lakewood Hospital. The trial court dismissed Plaintiffs' complaint against all Defendants, which included the following: the city of Lakewood ("the City"); Lakewood's Law Director, Kevin Butler; Lakewood's Mayor, Michael Summers; the Cleveland Clinic Foundation ("CCF"); CCF's former president and CEO Delos Cosgrove, M.D.; the Lakewood Hospital Association ("LHA"); LHA's Chairman, Thomas Gable; the Lakewood Hospital Foundation ("LHF"); LHF's president, Kenneth Haber; Subsidium Healthcare, L.L.C.; and Ohio Attorney General Mike DeWine (collectively "Defendants"). On appeal, Plaintiffs assign eight errors for our review.[1]

         {¶2} Having reviewed the record and pertinent law, we affirm the trial court's dismissal of Plaintiffs' complaint.

         I. Introduction

         {¶3} Plaintiffs are five residents of the City who take issue with Defendants' agreement to close Lakewood Hospital and replace it with a CCF family health center ("the FHC"). Plaintiffs filed an 18-count complaint, attacking this issue from various angles and requesting various forms of relief.

         {¶4} In counts 1A, 1B, and 1C, Plaintiffs, acting as taxpayers, allege a derivative action brought on behalf of the City to ensure that its officers do not abuse the municipality's corporate powers. In these taxpayer claims, the Plaintiffs stand in the shoes of the City, and their "rights or claims are no greater than the rights or interests of the municipality." Cincinnati ex rel. Ritter v. Cincinnati Reds, 150 App.3d 728, 2002-Ohio-7078, 782 N.E.2d 1225, ¶ 20 (1st Dist). Upon review, we find that Plaintiffs' taxpayer claims have been resolved to the point that they are moot and no longer justiciable.

         {¶5} Plaintiffs' remaining claims are unrelated to their status as taxpayers. We agree with the trial court that Plaintiffs have either failed to state a claim upon which relief can be granted or lack standing to bring these claims. The apposite facts and our analysis of the law follows.

         II. Facts and Procedural History

         {¶6} In 1930, the City took ownership of Lakewood Hospital and the real estate upon which it sits. In 1987, the City and LHA entered into an agreement in which the City leased Lakewood Hospital to LHA ("the Lease"). This changed the status of Lakewood Hospital from a public hospital to a private, nonprofit hospital. The Lease was renewed in 1996. Also in 1996, LHA and CCF entered into an agreement for the purpose of "integration of [LHA] and the CCF health care system" ("the Agreement"). Additionally, as part of the Agreement, CCF became the sole member of LHA. The practical result of the Lease and the Agreement was that CCF operated and managed Lakewood Hospital.

         {¶7} The term of the Lease is 30 years, which ends January 2, 2027, although the Lease can be terminated under various conditions. There is no term for the length of the Agreement. However, the Agreement can be terminated by mutual consent of the parties.

         {¶8} Plaintiffs allege that, beginning in 2005, Defendants "terminated * * * services offered by Lakewood Hospital" in violation of the Lease and the Agreement. For example, Plaintiffs allege that CCF was "turning away patients or sending them to other CCF wholly-owned hospitals [and] regional private ambulatory and public EMS services reportedly had been directed to transport patients to Fairview Hospital instead of Lakewood Hospital." Plaintiffs further allege that "[b]y terminating these services, CCF has been able to pursue its strategy of crippling Lakewood Hospital to the point that CCF would have leverage when bargaining alongside LHA with the City to close Lakewood Hospital, prematurely exit its [Agreement] and Lease obligations, and build a new hospital in Avon, Ohio, of which CCF will have complete ownership and control."

         {¶9} Plaintiffs also allege that, beginning in 2012, CCF "specified that medical services, equipment, and employees would be transferred gradually from Lakewood Hospital to Fairview Hospital * * * in preparation for the closure and razing of Lakewood Hospital as an inpatient acute care medical/surgical hospital." On January 14, 2015, CCF proposed closing Lakewood Hospital and building the FHC at the same location. This was memorialized in a public letter of intent signed by Cosgrove, Gable, and Haber.

         {¶10} On April 12, 2015, Plaintiffs, as taxpayers pursuant to R.C. 733.59, sent notice to the City requesting "an injunction to enjoin abuses of corporate power; specific performance regarding express rights and public duties stated in the [Lease and the Agreement]; and a writ of mandamus to compel the City officials to perform their duties and obligations" under the Lease and the Agreement.

         {¶11} On May 1, 2015, the City responded and refused to pursue a taxpayer suit as Plaintiffs requested. On May 28, 2015, Plaintiffs, acting on behalf of the City, filed this lawsuit, and on August 5, 2015, Plaintiffs filed an amended complaint alleging 18 causes of action. Plaintiffs generally allege that Defendants' actions violate the Lease and the Agreement's "express and implied terms to manage and operate Lakewood Hospital through 2026 * * *" and return the property to the City at that time. Defendants filed multiple motions to dismiss, arguing that Plaintiffs' claims should be dismissed for failure to state a claim upon which relief can be granted under Civ.R. 12(B)(6), lack of standing, failure to plead fraud with specificity under Civ.R. 9, mootness, and lack of subject matter jurisdiction under Civ.R. 12(B)(1).

         {¶12} A summary of the time line in this case, which will be explained in detail throughout the remainder of this opinion, follows.

         {¶13} On May 28, 2015, Plaintiffs filed their complaint. On December 21, 2015, the City passed an ordinance and entered into an agreement with CCF and LHA to close Lakewood Hospital. On February 6, 2016, Lakewood Hospital was closed. In September and October 2016, parts of Lakewood Hospital were demolished. On November 23, 2016, the City voters ratified the December 21, 2015 ordinance. In April 2017, construction began on the FHC.

         {¶14} On July 11, 2017, the court, in a 38-page decision, granted Defendants' motions and dismissed Plaintiffs' complaint in its entirety. It is from this order that Plaintiffs appeal.

         III. Motion to Partially Dismiss Appeal

         {¶15} Before reviewing Plaintiffs' arguments, we address Defendants' motions to partially dismiss this appeal. Defendants argue that Plaintiffs' first three causes of action, each styled "Taxpayers Suit, " along with their claims for injunctive relief and mandamus, are moot. To support this argument, Defendants attach various affidavits to their motion to partially dismiss. This court has held that

[n]ormally, an appellate court can only consider what is in the record on appeal. When it comes to deciding whether an event has caused an issue to be moot, however, it may 'be proved by extrinsic evidence outside the record.' State ex rel Cincinnati Enquirer, Div. of Gannett Satellite Info. Network, Inc. v. Dupuis, 98 Ohio St.3d 126, 2002-Ohio-7041, 781 N.E.2d 163, ¶ 8.

Gajewski v. Bd. of Zoning Appeals, 8th Dist. Cuyahoga No. 91101, 2008-Ohio-5270, ¶ 14.

         {¶16} Defendants argue that Plaintiffs' appeal, as it relates to counts 1A, 1B, 1C, 7, and 8, which seek an injunction, specific performance, and a writ of mandamus, should be dismissed, because it is impossible for this court to grant the relief requested. Defendants further argue that Plaintiffs "never attempted to enjoin the demolition of Lakewood Hospital's [parking] garage and professional office building or the commencement of construction of the Family Health Center further rendering their claims moot."

         {¶17} Plaintiffs, on the other hand, argue that this case is not about stopping the demolition of a parking garage or the construction of a family health center. Rather, according to Plaintiffs, this case is about stopping "the abuse of corporate powers by elected officials regarding express contract terms to operate, manage, and then return in 2026 the City-owned Lakewood Hospital * * * to the citizens of the City of Lakewood." In the alternative, Plaintiffs argue that even if this case involves a "construction matter, " Lakewood Hospital "is admittedly still in existence" and could be used as a hospital again. According to Plaintiffs, the "remedy of monetary relief still exists to hold [Defendants] accountable for their breaches and to allow for the reopening of an inpatient medical care facility on the city-owned land and building comprising the Hospital."

         {¶18} Upon review, we deny Defendants' motion to partially dismiss this appeal. In the interest of justice, we consider the parties' arguments on the merits.

         IV. Claim 1A - Taxpayer Suit under R.C. 733.59

         {¶19} A plaintiff who ordinarily may not have standing concerning a City's "abuse of corporate powers" may seek equitable remedies as a taxpayer under R.C. 733.56-733.59. "A taxpayer action is properly brought only when the right under review in the action is one benefitting the public." State ex rel. Fisher v. Cleveland, 109 Ohio St.3d 33, 2006-Ohio-1827, 845 N.E.2d 500, ¶ 10. Taxpayers must first request that the City's law director take action, and if this is unsuccessful, "the taxpayer may institute suit in his own name, on behalf of the municipal corporation." R.C. 733.59. Plaintiffs must allege "abuse of corporate powers" by the political subdivision, including, 1.) unlawful exercise of powers and, 2.) assumption of powers not conferred. See Elyria Gas & Water Co. v. Elyria, 57 Ohio St. 374, 49 N.E. 335 (1898).

         {¶20} Taxpayers may seek equitable relief under R.C. 733.59, limited to the following forms: 1.) pursuant to R.C. 733.56, "an order of injunction to restrain * * * the abuse of [municipal] corporate powers, or the execution or performance of any contract made [o]n behalf of the municipal corporation in contravention of the laws or ordinance[s] governing it, or which was procured by fraud or corruption"; 2.) pursuant to R.C. 733.57, "the specific performance [of] an obligation or contract made on behalf of a municipal corporation"; and 3.) pursuant to R.C. 733.58, "a writ of mandamus to compel the performance of [a] duty * * * expressly enjoined by law or ordinance."

         {¶21} In this case, it is undisputed that Plaintiffs made a written demand to the City's law director requesting that the City file suit under R.C. 733.56, 733.57, and 733.58. This demand was unsuccessful, and Plaintiffs filed the instant action, requesting the following relief: 1.) "a temporary and permanent injunction to enjoin the abuses of corporate powers by the City and prohibit the execution or performance of any resolution or contract in contravention of the existing" Agreement and Lease; 2.) specific performance of the Lease and the Agreement; and 3.) writ of mandamus compelling the City to operate under the Lease and the Agreement.

         {¶22} The trial court dismissed the taxpayer claims for the following reasons: The statutory taxpayer claims for an injunction and a writ of mandamus were dismissed for failure to state a claim upon which relief can be granted under Civ.R. 12(B)(6); and the statutory taxpayer claim for specific performance was dismissed for lack of subject matter jurisdiction based on mootness under Civ.R. 12(B)(1). We first address whether the court retained subject matter jurisdiction over the taxpayer claims based on mootness, because we find this dispositive.

         A. Lack of Subject Matter Jurisdiction and Mootness

         {¶23} Courts of common pleas' jurisdiction is limited to "justiciable matters." Morrison v. Steiner, 32 Ohio St.2d 86, 290 N.E.2d 841 (1972). "If what were once justiciable matters have been resolved to the point where they become moot, the courts of common pleas no longer have subject matter jurisdiction to hear the case." Hirsch v. TRW, Inc., 8th Dist. Cuyahoga No. 83204, 2004-Ohio-1125, ¶ 11. "The lack of subject-matter jurisdiction is not a waivable defense and may be raised for the first time on appeal." In re Claim of King, 62 Ohio St.2d 87, 89, 403 N.E.2d 200 (1980). Where mootness is concerned, "an actual controversy must exist at stages of appellate or certiorari review, and not simply at the date the action is initiated, " unless the issue is "capable of repetition, yet evading review." Roe v. Wade, 410 U.S. 113, 125, 93 S.Ct. 705, 35 L.Ed.2d 147 (1973).

         {¶24} "One commentator has defined mootness as 'the doctrine of standing set in a time frame: The requisite personal interest that must exist at the commencement of the litigation (standing) must continue throughout its existence (mootness).'" United States Parole Comm. v. Geraghty, 445 U.S. 388, 398, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980), quoting Monaghan, Constitutional Adjudication: The Who and When, 82 Yale L. J. 1363, 1384 (1973).

         {¶25} In the case at hand, on December 21, 2015, the City passed Ordinance 49-15, which authorized the City to enter into the Master Agreement with CCF and LHA. The same day, the parties entered into the Master Agreement, in which the City and LHA sold certain Lakewood Hospital assets, including real property, to CCF, with proceeds paid to the City. The Master Agreement also provided that ownership of other Lakewood Hospital property "revert back" to the City. Furthermore, according to Defendants, the Master Agreement "terminated the Agreement, significantly modified the Lease, and included a mutual waiver of all claims arising from the Agreement, the Lease, and the operation and management of Lakewood Hospital * * *."

         {¶26} Per the terms of the Master Agreement, Lakewood hospital was closed on February 6, 2016. Additionally, the parties agreed that CCF would construct the new $34, 000, 000 FHC in its place. In September and October 2016, CCF demolished Lakewood Hospital's parking garage and professional office building. In April 2017, CCF began construction of the FHC at the site where Lakewood Hospital's parking garage and professional office building used to stand.

         {¶27} On November 23, 2016, the City's voters passed Issue 64, which ratified Ordinance 49-15. The City's voters also adopted the Third Amended Charter for the City, which "eliminates all references to Lakewood Hospital and the City owning, leasing, or operating a hospital."

         {¶28} In dismissing Plaintiffs' taxpayer claims, the court found that, subsequent to the filing of this suit, the parties agreed to 1.) terminate the Agreement; 2.) amend/modify the Lease and eventually terminate the Lease when the FHC is complete; and 3.) waive and release any claims the City may have against CCF and LHA under the Lease and the Agreement. The court concluded that "[t]he release and waiver of claims, combined with the amendment and imminent termination of the [L]ease and the [A]greement, have made the Plaintiffs' taxpayers claims - which, it is worth repeating, are really Lakewood's claims - moot and there is no case or controversy for me to decide."

         B. Statutory Taxpayer Claim for ...

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