Current Agricultural Use Value
We learn early in law school that it’s an uphill battle when challenging agency actions in court, as the law typically grants agencies discretion to apply expertise and professional judgment when making decisions. A landowner in Clark County just learned this lesson. The landowner appealed the Ohio tax commissioner’s adoption of the 2016 Current Agricultural Use Valuation (CAUV) table, but the Ohio Supreme Court found no showing of an abuse of discretion by the agency.
The case arose from the CAUV valuation update in 2016 of William Johnson’s land in Clark County. In setting the CAUV values, the county auditor consulted the unit-value table adopted by the tax commissioner. The unit-value table lists soil types and ratings of each soil type along with per-acre values for each soil type. The tax commissioner annually adopts the table using a potential-income approach, as required by Ohio law, which determines typical net income from agricultural products for each type of soil, assuming typical management, yields, and cropping and land use patterns. A county auditor refers to the unit-value table when determining CAUV farmland values, applying the per-acre values from the table to the soil types on a parcel.
Johnson claimed that his CAUV value was too high because the 2016 unit-value table adopted by the tax commissioner did not list separate values for drained and undrained soils on his land. The table does list differing values for Adrian, Carlisle and Linwood soils—one value for drained soils and one value for undrained soils. However, the table lists just one value for all Crosby, Kokomo, and Patton soil types, the soils contained on the Johnson’s parcel. Johnson argued that the tax commissioner erred by adopting the unit-value table without establishing separate values for drained and undrained Crosby, Kokomo, and Patton soil types.
The Supreme Court explained that Johnson’s challenge required showing that the tax commissioner committed an “abuse of discretion” in adopting the unit-value table. Two important principles apply to the “abuse of discretion” standard, the first being that the court will not substitute its judgment for the agency’s judgment unless the agency acted with an unreasonable, arbitrary, or unconscionable attitude. The court also presumes that an agency’s decision is carried out in good faith and with sound judgment, unless there is proof to the contrary.
According to Johnson, the tax commissioner abused his discretion in several ways: by departing from the USDA’s taxonomy of soils, excluding data for land lacking artificial drainage, and not listing all soils with drained and undrained variations. The court found no abuse of discretion, however, and no evidence to support the Johnson’s claims. The court pointed out that the commissioner, as required by law, consulted with the “agricultural advisory committee” in preparing the table and referred to both Ohio State University’s Bulletin 685 and updates to the USDA taxonomy for guidance on soil types. Explaining that the CAUV potential-income approach required the commissioner to determine “typical” management practices, the court stated that the commissioner was justified in not establishing a separate value for the Johnson’s “atypical practice” of not installing artificial drainage for the specific soils on his property. Considering investments required for artificial drainage for some soil types but not for others doesn’t prove an abuse of discretion, the court stated.
The court’s conclusion reiterates the lesson on the difficulty of challenging an agency decision:
“To repeat: the differential treatment of soil types reflects the exercise of judgment by the commissioner, which we presume to be sound. . . The record does not disclose the rationale for every consideration underlying the unit-value table, but it was not the commissioner’s burden to demonstrate the reasonableness of the CAUV journal entry—it was Johnson’s burden to show an arbitrary or unconscionable attitude on the part of the commissioner. He has not done so.”
Last month a lawsuit about Ohio’s Current Agricultural Use Value (CAUV) calculation showed back up on our radar. As we explain in another blog post, the state of Ohio uses CAUV to calculate how much tax owners of land devoted exclusively to an agricultural use must pay. The plaintiffs sought reimbursements from the state by arguing that the state failed to properly calculate CAUV in accordance with Ohio law. The case was dismissed by the Franklin County Court of Common Pleas, and the 10th District Court of Appeals affirmed that decision as appropriate. However, that does not necessarily spell the end for these plaintiffs.
What started the lawsuit: good times meant higher taxes
Many farmland owners likely remember what happened around the middle of this decade to property tax assessments under Ohio’s CAUV formula as it was calculated at that time. In part because Ohio’s CAUV assessment formula takes agricultural commodity prices into account, a couple of strong years for crop prices contributed to a drastic and generally unanticipated increase in property tax bills for farmers across the state. Those assessment increases led to a successful effort to change the CAUV formula so that drastic fluctuations would be less likely to occur moving forward. However, some property owners wanted a reimbursement for previous assessments, not just a new formula.
What the plaintiffs wanted: equitable restitution
The case began on June 26, 2015, when three parties filed a complaint in a county court of common pleas against the state tax commissioner. The three plaintiffs sought a class action certification to act on behalf of all owners of Ohio lands devoted to agricultural production. The complaint alleged that the state of Ohio illegally collected more than a billion dollars of property taxes from those owners. Therefore, the landowners first sought repayment under the legal doctrine of unjust enrichment.
Over the next few months, the plaintiffs amended their complaint twice. The first amended complaint added a claim for repayment under the doctrine of equitable restitution. It also added more named plaintiffs, added then-Governor Kasich as a defendant, and asked for compensatory damages. The second amended complaint removed the Governor and tax commissioner as defendants, added the state of Ohio as a defendant, and removed all claims except for equitable restitution and a declaratory judgment. Lots of adjustments, but what is equitable restitution?
Equitable restitution is a type of recovery under the law that says one party has improperly benefitted at the expense of another, and therefore should return the benefit to its rightful owner. Here, the plaintiffs argued that allegedly illegal CAUV collections meant that the state of Ohio had improperly benefitted at the expense of owners of CAUV lands. Therefore, the state of Ohio should have to return that benefit, which would mean a return of the property tax overpayments.
However, there are two types of restitution under the law: legal and equitable. Legal restitution is available when a plaintiff cannot assert a right of possession to a particular property but is nonetheless able to shows grounds for compensation from the defendant. When money is involved, the distinction is largely based upon whether money clearly identifiable as belonging to the plaintiff can be traced to particular funds in the defendant’s possession. If the money can be traced to particular funds, then equitable restitution is more likely to apply.
For example, say that a plaintiff gave a defendant a five dollar bill, but something goes wrong and the plaintiff wants her money back. The plaintiff may have an equitable remedy if she seeks the return of that specific five dollar bill. However, she may only have a legal remedy if she simply wants five dollars back. This distinction played an important role in the outcome of this case.
Why the case was dismissed: lack of jurisdiction
The lawsuit was ultimately dismissed because the common pleas court determined that it could not hear the case because of the nature of the remedy sought. Instead, in ruling on the state’s motion to dismiss, the common pleas court decided, and the appellate court affirmed, that only the Ohio Court of Claims has jurisdiction for this type of case.
The Ohio Court of Claims is a special kind of state court that exists primarily to handle lawsuits against the state of Ohio. Its existence stems from the idea in the U.S. Constitution’s Eleventh Amendment that states have immunity as sovereigns. States may choose if and when to be sued; however, most have waived that immunity to some extent. Ohio chose to partially waive its sovereign immunity in particular types of cases by allowing people to sue it in a special court instead of in a county court of common pleas.
When it created the Ohio Court of Claims, the Ohio General Assembly decided that people seeking relief at law must file their lawsuit with the Ohio Court of Claims, while those seeking equitable relief may file their lawsuit with a county court of common pleas.
Restitution happens to be a type of remedy that can be classified as either legal or equitable in nature. The focus is not on what the parties call the restitution they seek, but what they actually want from it. In this case, it was not enough that the plaintiffs called what they wanted “equitable restitution.” The court only cared about what the plaintiffs actually sought.
In looking at the facts, the court determined that the plaintiffs sought the return of funds that could not be traceable into any state account, and therefore the remedy sought was legal in nature. The court explained that Ohio’s property taxes are collected and held at the county level, and there was no evidence that the CAUV property tax collected by the counties ever made it to the state. Absent this transfer, the specific tax dollars that the plaintiffs allege were wrongfully paid to the state were not traceable to any state accounts. Without this traceable link, the plaintiffs could only seek a return of money in general, rather than the return of specific funds. Because of this, only the Ohio Court of Claims could hear this case and award this remedy.
It was on the basis of this distinction that the Franklin County Court of Common Pleas dismissed the case, and that the Tenth District Court of Appeals affirmed the dismissal.
What are the plaintiffs’ next steps: Ohio Court of Claims or the end?
The trial court dismissed the case “without prejudice,” meaning that the parties are not barred from filing the case again in a proper court. This can be common when the case is dismissed on a procedural basis where there could be a claim with some merit that has neither been decided on the merits nor settled. At this time, it does not appear that the plaintiffs have refiled the case in the Ohio Court of Claims, and we cannot predict whether or not they will do so.
The case is cited as Vance v. State, 2019-Ohio-1027 (10th Dist.), and the opinion is available on the Ohio Supreme Court’s website HERE.