OAITA's MSJ filed Against ODI in Declaratory Judgment Action

IN THE COURT OF COMMON PLEASFRANKLIN COUNTY, OHIO

OHIO ASSOCIATION OFINDEPENDENT TITLE AGENTS, etal.,

Plaintiffs,

VS.

CASE NO. 09 CV6663

JUDGE HORTON

MOTION FOR SUMMARYJUDGMENT

MARY JO HUDSON, DIRECTOR,OHIO DEPARTMENT OFINSURANCE,

Defendant.

Now come the Plaintiffs, Ohio Association of Independent Title Agents

("OAITA") and Eagle Land Title Agency, Inc. ("Eagle"), by and through its undersigned

counsels, and moves this Honorable Court for an Order pursuant to Ohio Civil Rule

56(A) for summary judgment in their favor.

As grounds, Plaintiffs assert that even in a light most favorable to the Defendant,

Mary Jo Hudson, Director, Ohio Department of Insurance, (herein "ODI") there is no

genuine issue of material fact that remains to be litigated in regard to the substantive

statutory conflicts that exits between Ohio Administrative Code, (herein"OAC), 3901-7-

04 - (Title Insurance Controlled Business Arrangements) and ORC §3901.20, ORC

§3901.21(E), ORC §3933.01, ORC §3953.21(B), ORC §3953.25, and ORC §3953.26,

raised by this motion.

In adopting OAC 3901-7-04 the ODI inappropriately presumed that controlled

business arrangements and prohibited person-owned title insurance agencies were

otherwise legal under Ohio law despite the longstanding statutory prohibitions to the

contrary and the Ohio Department of Insurance's own interpretation of Ohio Rev. Code

§3953.26 and Ohio Rev. Code §3933.01 as found in Ohio Department of Insurance

Bulletin 95-3. Therefore, Plaintiffs are entitled to Summary Judgment in their favor.

Further support for this Motion is attached hereto in Plaintiffs' Brief in Support,

which is incorporated herein by reference.

Respectfully submitted,

ce. E. Bruce Hadden, Esq. (0031753)HADDEN CO., LPA132 Northwoods BoulevardColumbus, Ohio 43235Phone (614) 431-2000Fax (614) 436-4500E- i BHadde

, Esq. (0072480)K & MCDONALD

x 4639Cleveland, Ohio 44146Phone: (440) 232-9911Fax: (440) 439-2308E-Mail: [email protected]

Gregory .1, . H.4p, Esq. (0008538)ATTORNEY-AT-LAW238 W. Liberty StreetMedina, Ohio 44256Phone (330) 723-7000Fax (330) 725-8804E-Mail: gregoryhappAmsn.com

Trial Counsels for Plaintiffs

2

PLAINTIFFS' BRIEF IN SUPPORT

OF MOTION FOR SUMMARY JUDGMENT

I. STATEMENT OF FACTS

A. WHAT IS TITLE INSURANCE?

Title insurance is a unique form of insurance. Ohio Rev. Code §3953.01(A)

provides the following statutory definition of "Title Insurance:"

(A) "Title insurance" means insuring, guaranteeing, orindemnifying owners of real property or others interested inreal property against loss or damage suffered by reason ofliens or encumbrances upon, defect in, or theunmarketability of the title to the real property,guaranteeing, warranting, or otherwise insuring by a titleinsurance company the correctness of searches relating tothe title to real property, or doing any business in substanceequivalent to any of the foregoing.

Due to the unique nature of the issuance of title insurance being issued only upon

a "reasonable title search" the selection of a title insurance agent, who will be entrusted to

perform the title search, perform the subsequent title examination and make the final

disclosure of title encumbrances of any real estate title, should be left to the sole and

exclusive discretion of consumers; without the influence of banks, mortgage brokers and

real estate firms whose financial interests may conflict with the interest of the consumers.

Title insurance facilities homeownership as it mitigates the risks of sellers, buyers

and lenders in the transfer of real property. Title insurance is also critical in allowing real

property owners to refinance their mortgages or utilize the equity in their real estate

holdings. Title insurance offers sellers, buyers and lenders the maximum amount of

protection from adverse claims and risks associated with title to real estate.

3

B. THE BUSINESS OF TITLE INSURANCE IN OHIO

In Ohio, the title insurance market is highly concentrated; four insurer-

underwriter groups control over ninety-five percent (95%) of the market statewide.' In

such a concentrated market, the ability of title insurance agents to freely compete is

essential to their success and essential to consumer protection. In any real estate

transaction; banks, mortgage brokers, real estate companies and their subsidiaries play an

important, if not dominant, role in the process of securing title insurance for the

transaction. In a large majority of, if not all, real estate transactions, wherein a bank or

mortgage broker or their subsidiaries are lending any portion of the purchase price or are

involved in a refinance of the real estate, title insurance is mandated by the bank or

mortgage broker as a condition of the loan.

Because of their dominating role in the real estate transaction, banks, mortgage

brokers, and real estate firms are able to steer, if not outright mandate, the consumers'

selection of a particular title insurance agent. Furthermore, because title insurance is

required for obtaining a loan or purchasing the property, the consumers have little or no

market power in the title insurance transaction. This inequity is further enhanced by the

fact that the consumers usually have relatively little knowledge of title insurance and its

complexities.

The consumers in residential real estate transactions are typically neither

sophisticated, nor represented by legal counsel; therefore the banks, mortgage brokers

and real estate firms have great influence or powers of persuasion when "helping" the

consumers select a title insurance agent. Rarely, if at all, are the consumers included, in

any meaningful way in the selection process for choosing a title agent or title insurance

http://www.alta.org/industry/08-04/2008_ MarketShare byFamilyandState.xls (visited April 14, 2010).

4

company. It is not an uncommon practice for real estate firms to provide consumers with

a pre-printed real estate purchase agreement, wherein the title insurance agency is pre-

named in the pre-printed real estate purchase agreement.2

Moreover, most oral and written actions in conjunction with the real estate closing

are designed to facilitate the closing not to inform the consumer. In most residential real

estate transactions, the consumers do not find out which title insurance agent or title

insurance company/underwriter is issuing the policy until the real estate closing or at the

time the actual policy is presented to the consumers some weeks or months later.

Usually, when the consumers discover the title insurance expense is at the closing, it is

merely included with the numerous other closing costs on the HUD-1 Settlement

Statement.

It is commonplace for the consumers to assume that the entities or persons

working in conjunction with the real estate transaction (i.e. banks, real estate firms,

and/or mortgage brokers) are acting in their best interest, when in fact these parties, more

often than not, are acting out of their own financial interests and not the interest of the

consumers. Seldom if ever do banks, real estate firms or mortgage brokers discuss the

significant conflicts of interest that may arise in any real estate transaction between the

financial interests of the bank, mortgage broker or real estate firm. This failure to

communicate known conflicts of interests makes the divide between the desire to close

the real estate transaction in order that commissions may be earned and the discovery and

disclosure of title defects or encumbrances that may affect the use or later sale of the real

estate by the consumers that much greater.

2 See Affidavit of Steven J. Squeo, attached hereto as Exhibit A.

5

Even the federally mandated disclosure by a bank, a mortgage broker or real

estate companies' affiliation with a title insurance agency through an affiliated business

arrangement or controlled business arrangement -- where referral sources such as banks,

mortgage brokers and real estate firms maintain direct ownership interests in title

insurance agencies in exchange for exclusively referring their settlement service business

to the controlled title insurance agency --, is insufficient to explain to an unwary and

unsophisticated consumer the nature and extent of the possibility of the numerous

"conflicts of interest" that may arise in the real estate transaction. Land titles and title

insurance thereto, as dictated by the Ohio Revised Code, must remain free of any undue

influence by and/or the financial interests of banks, mortgage brokers, and/or real estate

firms.

C. REVERSE COMPETITION.

Despite the obvious advantages to the ultimate purchasers of title insurance, the

consumers, the title insurance product is not sold in a truly competitive marketplace.

Instead, the title insurance industry operates under an economic system known as

"reverse competition," where the referral party is the one rewarded at the expense of the

ultimate purchaser.

Reverse competition is a feature of certain insurance transactions in which the

buyer of the insurance is not actuality shopping for insurance, but is shopping for an

expensive item, such as a home or a new mortgage and an accompanying purchase of

insurance is required or recommended in such transactions. At this point, a third party

(such as a real estate firm, mortgage broker or lender) is in a position to steer the

customer to a particular insurer. This third party may be influenced by financial

6

inducements or kickbacks when selecting a particular title insurance agent or title

insurance company. These inducements come in many forms including: commissions,

over/under priced services and captive title insurance agreements among settlement

providers. The reverse competition model rewards the third party for steering the

purchaser towards an insurer, rather than lowering the overall rate for services.

This reverse competition structure of the title insurance industry has been well

documented and its effects have become the subject of long-standing statutory

prohibitions against "kickbacks" and referral fees. 3 As an additional consequence of

reverse competition, title insurance underwriters operating in a referral-driven market

have utilized their market buyer to ostensibly "buy" their market share to the detriment of

open competition.4 For example, there is a significant amount of vertical and horizontal

consolidation in the title insurance industry as many national title insurance underwriters

have purchased both smaller regional title underwriters and existing title agencies in

order to enhance their market share and increase their domination of the smaller,

independent title insurance agencies. 5 These national underwriters have willfully

permitted banks, mortgage companies and real estate firms into the title insurance

industry and continue to use their lobbying power within the state land title associations

3Jack Guttentag, "Real Estate Settlement Services Take Bite Out of Borrowers," Inman News, September

6, 2005; see also, The Pricing and Marketing of Insurance: A Report of the Department of Justice to theTask Group on Antitrust Immunities, January 1977, Pages 250-274; "Chapter XII The Title Assurance andConveyance Industries" of Real Estate Closing Costs, RESPA, Section 14a, Volume II SettlementPerformance Evaluation prepared by Peat, Marwick, Mitchell and Co. for the Department of Housing andUrban Development, October 1980; State of California Department of Insurance Bulletin 80-12, December24, 1980, Subject: Insurance Code Section 12404 - Unlawful Rebates; Title Insurance Advisory CommitteeFinal Report to the State Board of Insurance, September 1986; Nelson Lipshutz, The RegulatoryEconomics of Title Insurance, Praeger Press, Westport, CT, 1994, page 5; Ohio Rev. Code § 3953.26.

Birnbaum, Birny, Report to the California Insurance Commissioner, "An Analysis of Competition in theCalifornia Title Insurance and Escrow Industry," December 2005, at 57.51d.

7

to drive down the traditional barriers to access by prohibited parties like banks, mortgage

companies and real estate firms that have existed in Ohio since 1967.

D. CONTROLLED BUSINESS ARRANGEMENTS IN OHIO.

The instant case deals with the single most important issue for Ohio land title

agents -- controlled business arrangements and the failure of the ODI to properly enforce

laws specifically designed to prohibit them. As will be further explained below, the

ODI' s construction of administrative rules is in direct conflict with the Ohio Revised

Code and is damaging the title insurance industry and harming consumers.

Despite their role in a real estate transaction, banks, mortgage brokers and real

estate firms and their subsidiaries are prohibited by the Ohio Revised Code from acting as

a licensed title insurance agency or from being appointed a title insurance agency by a

title insurance company/underwriter. 6 To counteract this statutory prohibition, banks,

real estate firms and mortgage companies have formed subsidiaries known as controlled

business arrangements (herein "CBAs") with title insurance agents and title insurance

agencies for the referral of their customers' real estate transactions. These CBAs restrict

the referral of their customer's title insurance business-needs to the entities engaged in

the CBA, which limits the ability of other title insurance agencies that are not part of the

CBA to compete for the customer' business and/or restricts the customer from having the

benefit of true market competition.

These CBAs also provide for the sharing of profits from the title insurance

venture between the title insurance agency and the bank, real estate firm or mortgage

company who acts as the business referral partner. This sharing of profits between title

insurance agency and a bank, a real estate firm, or a mortgage company is unlawful as

6 Ohio Revised Code §3953.21(B).

8

title insurance companies/underwriters are prohibited from paying a title insurance

commission to anyone other than a licensed title insurance agent.?

Aside from the CBAs, in order to further circumvent Ohio law, the parent holding

companies of banks, mortgage brokers and real estate companies have established their

own subsidiary title insurance agencies. Under Ohio law, banks, real estate companies

and mortgage brokers are not authorized to function as de facto title insurance agencies.

They are not allowed, directly or indirectly, to own or control interests in title insurance

agencies. Granted, these controlled business arrangements may be lawful under the

federal law, RESPA, 12 U.S.C. § 2607. However, RESPA allows state law to set higher

standards. Ohio has chosen to set a higher standard 8 and thus these CBAs are not

permissible under the higher thresholds of the Ohio Revised Code.

E. THE GAO STUDIES - 2006 & 2007.

In 2006, the U.S. Government Accountability Office (GAO) provided a report and

testimony to the House Committee on Financial Services identifying issues in the title

insurance market that merited further study because they could shed light on competition

and the prices homeowners and borrowers pay for title services. 9 The 2006 GAO report

resulted in a further study that the GAO released in April of 2007 and titled, "Title

Insurance: Actions Needed to Improve Oversight of the Title Industry and Better Protect

Consumers".10

7 Ohio Rev. Code § 3953.25.Defendant's Answer to ¶28 of Plaintiffs' Complaint confirms this belief.

9 GAO, Title Insurance: Preliminary Views and Issues for Further Study, GAO-06-568 (Washington, DC:Apr. 24, 2006); and Title Insurance: Preliminary Views and Issues for Further Study, GAO-06-569T(Washington, DC: Apr. 26, 2006)(Copy attached hereto as Exhibit XXXX).m GAO, Title Insurance: Actions Needed to Improve Oversight of the Title Industry and Better ProtectConsumers, GA0-07-401 (Washington, DC: April 13, 2007)(Copy attached hereto as Exhibit B).

9

In the 2007 study, GAO recommended that the U.S Department of Housing and

Urban Development (HUD) take two actions to improve the functioning of the title

insurance market: (1) improve homeowners' ability to shop for title insurance based on

price; and, (2) improve its ability to detect and deter violations of section 8 of RESPA.11

In the 2007 study, GAO also recommended that state regulators take action to: (1)

improve homeowners' ability to shop for title insurance; and, (2) improve their oversight

of title agents by strengthening their regulation of title agents and CBAs, in particular.12

In the 2007 study, the GAO indicated that the use of CBAs among title insurance

agents, agencies and the banks, real estate companies and mortgage brokers who serve as

referral sources was growing not decreasing. 13 The 2007 GAO study concluded that

HUD and state regulators should clarify regulations concerning referral fees and CBAs

and improve oversight.14

To date, HUD has not yet released any additional regulations concerning the issue

of CBAs. The ODI, on the otherhand, has promulgated an administrative rule that

applies RESPA-related principles to CBAs, but fails to construe the rule to conform with

Ohio Rev. Code § 3953.21(B) which already prohibited banks, mortgage companies, real

estate firms and their "subsidiaries" from acting as "agents" of title insurance companies,

Ohio Rev. Code § 3953.25 which prohibits the sharing of title insurance commissions

with non-title agents, Ohio Rev. Code § 3953.26 which prohibits kickbacks and other

valuable things -- such as stock dividends and profit distributions -- as an inducement for

II Id. at pg. 6.12 Id. at pg. 6.13 Id. at pg. 15.14 Id. at pg. 56.

10

title insurance business, and Ohio Rev. Code § 3901.21(E) which prohibits the provision

of company stock as an inducement for insurance business.'5

F. THE OHIO DEPARTMENT OF INSURANCE.

The Ohio Department of Insurance is an administrative department created

pursuant to Ohio Rev. Code § 121.02. (See Ohio Rev. Code § 121.02(M)). Defendant,

the Honorable Mary Jo Hudson is the Director of the ODI. (See Complaint and Answer).

In 2007, Ohio title companies generated over $360 million dollars in title

premiums from a source base of approximately 3,000 title agents. I6 Currently, the ODI

has only one full-time employee and a handful of part-time investigators (i.e.

investigators who also handle property and casualty lines in addition to title insurance)

dedicated to the promulgation, interpretation and enforcement of title insurance rules

found in Title 3953 of the Ohio Revised Code.17

The ODI Director is charged with enforcing Ohio law as it pertains to title

insurance. I8 The ODI Director has both actual and constructive knowledge of the

prohibition against CBA title insurance agents and agencies in Ohio. 19 Despite this

knowledge, the ODI Director has permitted the licensure and allowed the continued

licensure of CBA title insurance agents and agencies that are in clear violation of Ohio

statutory law. 2° The actions and inactions of the ODI Director have damaged and

continue to damage Ohio consumers and Ohio's title insurance industry.

15 OAC 3901-7-0416 http://www.alta.org/industry/07ALL/2007market famstate.xls (visited April 15, 2010).17 Squeo Affidavit, supra.18 Ohio Rev. Code § 3901.011.19 See Defendant ODI's Answer to Plaintiffs' Complaint at ¶31. The ODI admitted actual and constructiveknowledge in her Answer.20 Squeo Affidavit, supra.

11

Title 39 of the Ohio Revised Code charges the ODI Director with the

responsibility of enforcing Ohio law as it pertains to this Title. (See Ohio Rev. Code

Title 39, Complaint and Answer). Chapter 3953 of the Revised Code authorizes and

limits the issuance of title insurance in Ohio. (See Ohio Rev. Code § 3953). The

Director of ODI is mandated to see that the laws relating to insurance are executed and

enforced under Ohio Rev. Code §3901.011 (See Ohio Rev. Code §3901.011) Pursuant

to Ohio Rev. Code §3901.041, the superintendent of insurance has the power to adopt

administrative rules. (See Ohio Rev. Code §3901.041).

On January 1, 2007, the Ohio Department of Insurance, pursuant to rule making

authority under Ohio Rev. Code § 3901.041, adopted an administrative rule known as,

"Title insurance controlled business arrangements," OAC 3901-7-04. 21 The purpose of

that rule was to establish ownership and licensing standards for title insurance agents and

agencies in accordance with division (B) of section 3953.21 of the Revised Code, which

prohibits certain persons from acting as agents for a title insurance

company/underwriter.22

II. LAW AND ARGUMENT

A. SUMMARY JUDGMENT STANDARD IN OHIO

Ohio Rule of Civil Procedure 56 (C) states that a motion for summary judgment:

"Shall be rendered forthwith if the pleadings, depositions,answers to interrogatories, and admissions on file, togetherwith the affidavits, if any, show that there is no genuineissue as to any material fact and that the moving party isentitled to a judgment as a matter of law."

21 Full text of OAC 3901-7-04 is attached hereto as Exhibit B.22 See OAC 3901-7-04(A), attached hereto as Exhibit B.

12

According to Rule 56 of the Ohio Rules of Civil Procedure, the Court should

grant Summary Judgment when the following tripartite test has been satisfied:

"(1) [T]here is no genuine issue as to any materialfact; (2) the moving party is entitled to judgment as amatter of law; and (3) reasonable minds could come tobut one conclusion, and that conclusion is adverse tothe party against whom the motion for summaryjudgment is made, who is entitled to have the evidenceconstrued most strongly in his favor."

Turner v. Turner, 67 Ohio St.3d 337, 617 N.E.2d 1123 (1993), citing Temple v.

Wean United, Inc., 50 Ohio St.2d 317, 364 N.E.2d 267 (1977) and Harless v. Willis Day

Warehousing Co., 54 Ohio St.2d 64, 66, 375 N.E.2d 46 (1978).

The burden of proving the absence of a genuine dispute as to any alleged material

fact is shouldered by the moving party. Under Ohio Civil Rule 56 (C), the moving party

has the burden to persuade the court that no genuine issue of material fact exists and,

therefore, that the moving party is entitled to summary judgment as a matter of law.

Norris v. Ohio Standard Oil Co., 70 Ohio St.2d 1, 24 Ohio Op.3d 1, 433 N.E.2d 615

(1982); see also, Hamlin v. McAlpin Co., 175 Ohio St. 157, 196 N.E.2d 781 (1964).

B. STANDARD FOR PROVING AN ADMINISTRATIVE RULE INVALID

An administrative rule issued pursuant to statutory authority is presumed valid

and enforceable unless it is unreasonable or in clear conflict with legislation governing

the subject matter. Cosby v. Franklin Cty. Dept. of Job and Family Servs., 2007-Ohio-

6641, 2007 WL 4340280 at 37 (Ohio App.lOd, 2007) (Copy attached hereto as Exhibit

C); citing Hoffman v. State Med. Bd., 113 Ohio St.3d 76, 865 N.E.2d 1259 (2007).

Simply put, it is essential to the validity of an administrative rule that the rule does not

conflict with the statute. Matz v. J.L. Curtis Cartage Co., 132 Ohio St. 271, 285, 7

13

N.E.2d 220, 227 (1937). When the potential for conflict arises, the proper subject for

determination is whether the administrative rule contravenes an express provision of the

statute. Cosby, Supra at ¶ 37; citing Brindle v. State Med. Bd. of Ohio, 168 Ohio App.3d

485, 860 N.E.2d 1034 (Ohio App.10d, 2006).

If the administrative rule in question adds or subtracts from the legislative

enactment, the rule is invalid as it is in clear conflict with the statute. Hoffman, at 378,

865 N.E.2d at 1261; citing Cent. Ohio Joint Vocational School Dist. Bd. of Edn. v. Ohio

Bur. of Emp. Servs., 21 Ohio St.3d 5, 487 N.E.2d 288 (1986). Furthermore, the case law

is well settled that an administrative rule may not add to or subtract from a statute. Cent.

Ohio Joint Vocational School Dist. Bd. of Edn., at 10, 487 N.W.2d at 292.

"Administrative rules are designed to accomplish the ends sought by legislation

enacted by the general assembly." Hoffman v. State Med. Bd., at 76, 865 N.E.2d 1259.

The legislative intent of Ohio Revised Code Chapter 3953 is clear from the face of the

statute and was to ensure that only licensed title insurance agencies or agents participate

in the business of title insurance. OAC 3901-7-04 is not consistent with the legislative

intent as it allows certain business arrangements to thwart the prohibitions of the Ohio

Revised Code. OAC 3901-7-04 is in clear conflict not only with the legislative intent of

the statute, but also with the ODI's own interpretation of key statutory provisions such as

Ohio Rev. Code § 3953.26 23 and it is therefore invalid.

Ohio Courts frequently use the "Carroll Test" to analyze the validity of an

administrative rule. Under the Carroll Test an administrative rule cannot be: (1)

unreasonable, nor (2) in clear conflict with the statute on the same subject, nor (3) may

the director of the administrative body promulgate rules which add to his delegated

23 ODI Bulletin 95-3.

14

powers, no matter how sensible the rules are. Carroll v. Dept. of Adm. Serv., 10 Ohio

App.3d 108, 110, 460 N.E.2d 704, 706-707 (Ohio App.10d, 1983). As will be further

explained below, the administrative rule in question is invalid as it clearly conflicts with

statutory law.

C. OAC 3901-7-04 IS INVALID AS IT CONFLICTS WITH OHIO REV. CODE

§3901.32(B).

OAC 3901-7-4(C)(2) provides in full:

"Control,' including 'controlling', 'controlled by', and`under common control with' means the possession, director indirect, of the power to direct or cause the direction ofthe management and policies of a person, whether throughthe ownership of voting securities, by contract other than acommercial contract for goods or non-managementservices, or otherwise. Control shall be presumed to existif any person, directly or indirectly, owns, controls,holds with the power to vote, or holds proxiesrepresenting fifty percent or more of the voting securitiesor interests of any other person. Control shall also bepresumed to exist between a natural person and animmediate family member. These presumptions may berebutted by showing that control does not exist in fact. Thesuperintendent of insurance may determine that controlexists if the facts support such a determinationnotwithstanding the absence of a presumption to thateffect." (Emphasis added).

Ohio Rev. Code §3901.32(B) provides in full:

"Control,' including `controlling,' `controlled by,' and`under common control with,' means the possession, director indirect, of the power to direct or cause the direction ofthe management and policies of a person, whether throughthe ownership of voting securities, by contract other than acommercial contract for goods or nonmanagement services,or otherwise, unless the power is the result of an officialposition with or corporate office held by the person.Control shall be presumed to exist if any person,directly or indirectly, owns, controls, holds with thepower to vote, or holds proxies representing, ten per

15

cent or more of the voting securities of any other person.This presumption may be rebutted by a showing made inthe manner provided in division (J) of section 3901.33 ofthe Revised Code that control does not exist in fact. Thesuperintendent of insurance may determine, after furnishingall persons in interest notice and opportunity to be heardand making specific findings of fact to support suchdetermination, that control exists in fact, notwithstandingthe absence of a presumption to that effect." (Emphasisadded).

Clearly, there is a definite conflict between the language of the administrative

code found at OAC 3901-7-04 and the corresponding definition of "control" found in

Title 39 of the Ohio Revised Code at §3901.32(B). 24 The OAC rule provides for control

to be presumed at fifty percent (50%) whereas the Revised Code provision provides for

control to be presumed at ten percent (10%). Undoubtedly„ this is a drastic difference.

As explained above, an administrative rule is invalid if it is in clear conflict with a

statutory provision. Cent. Ohio Joint Vocational School Dist. Bd. of Edn., at 10, 487

N.W.2d at 292. The facts of the instant case are analogous with the Cent. Ohio Joint

Vocational School Dist. Bd. of Edn. case. In Cent. Ohio Joint Vocational School Dist.

Bd. of Edn., there was clear conflict between an administrative rule and the Ohio Revised

Code. Id. The administrative rule only allowed for one (1) renewal of a teaching

certificate, whereas the Ohio Revised Code allowed for three (3) renewals. Id The Ohio

Supreme Court held that the administrative rule was invalid as it clearly conflicted with

statutory law. Id Accordingly, ODI's rule that control is presumed to exist at fifty

24 There is no other statutory definition of the term "control" for insurance purposes other than that locatedat Ohio Rev. Code § 3901.32(B). The ODI's administrative rule, known as OAC 3901-7-04,inappropriately attempts to create a new definition of the term "control" through an administrativerulemaking measure despite the limiting definition of the same term already found in the insurance codeand located at Ohio Rev. Code § 3901.32(B).

16

percent ownership (50%) must be invalid as it clearly conflicts with the statutory

presumption of control existing at ten percent (10%).

The ODI admits that if the ODI has overstepped its rulemaking authority, that

usurpation of power will be evident on the face of the rule and the statute that grants

rulemaking authority. 25 The purpose of OAC 3901-7-04 is stated as follows:

"(A) Purpose. The purpose of this rule is to establishownership and licensing standards for title insurance agentsand agencies in accordance with division (B) of section3953.21 of the Revised Code, which prohibits certainpersons from acting as agents for a title insurancecompany."

By way of OAC 3901-7-04, the ODI sought to enumerate a definition of "control"

that would ostensibly permit CBAs to operate in Ohio so long as they were not

"controlled" by their referral source despite the fact that no section of Title 3953 of the

Ohio Revised Code contains a similar definition of "control". 26 In other words, the ODI

sought to create a definition of the term "control" without statutory support and in

complete defiance of the lone definition of the term "control" found within the insurance

code at Ohio Rev. Code § 3901.32(B). The ODI's usurpation of power is patently

evident from the face of OAC 3901-7-04 and Ohio Rev. Code § 3901.32(B). The ODI's

usurpation of power is also evident from the fact that the Director intended, by way of

OAC 3901-7-04, to unilaterally amend Title 3953 of the Ohio Revised Code to create a

new definition of the term "control" to suit the purposes of her rulemaking venture. This

usurpation of power is clear and unequivocal and must be invalidated.

25 See Memorandum Contra of Defendant Mary Jo Hudson, Director of the Ohio Department of Insurance,to Plaintiffs Ohio Association of Independent Title Agents, et al., Motion to Compel Discovery FiledDecember 7, 2009 at 1.26 Title 3953 is oft-cited as Ohio's Title Insurance Code, a subset of the broader Title 39 provisionsconcerning all lines of insurance.

17

Further proving the invalidity of the OAC 3901-7-04(C)(2), is the well settled

maxim that an administrative rule cannot add to or subtract from statutory language. Id

The language OAC 3901-7-04(C)(2) is invalid as it lowers the impact of the statute by

changing the threshold for control from the statutorily prescribed ten percent (10%) to

fifty percent (50%). Furthermore, an administrative rule may not exceed the statutory

provisions upon the same subject. See Ransom & Randolph Co. v. Evatt, 142 Ohio St.

398, 407-408, 52 N.E.2d 738, 742 (1944). Certainly the fifty percent (50%) control

provision of the OAC exceeds the ten percent (10%) threshold of the statute; therefore

this administrative rule is invalid. As OAC 3901-7-04(C)(2) subtracts from the

protection offered under Ohio Rev. Code §3901.32(B), the administrative rule is invalid;

accordingly Plaintiffs are entitled to judgment as a matter of law.

D. OAC 3901-7-04 Is INVALID AS IT CONFLICTS WITH OHIO REV. CODE§ 3933.01 AND OHIO REV. CODE §3953.26

Both Ohio Rev. Code §3933.01 and Ohio Rev. Code §3953.26 prohibit title

insurance agencies and title insurance agents from, directly or indirectly, inducing and/or

procuring title insurance business by giving certain prohibited and enumerated

considerations or inducements.

1. Ohio Rev. Code §3953.26 provides:

"No title insurance company and no titleinsurance agent shall pay or give [to] anyapplicant for insurance, or to any person, firm, orcorporation who is acting as agent, representative,attorney, or employee of the owner, lessee,mortgagee, or of the prospective owner, lessee, ormortgagee of the real property or any interest

18

therein, either directly or indirectly, anycommission or any part of its fees or charges, oranv other consideration or valuable thing, as aninducement for, or as compensation for, any titleinsurance business. Nothing in this section shallpreclude the payment by a title insurance companyof a commission to any attorney, if said attorney isalso a licensed title insurance agent of such titleinsurance company, or the payment by such titleinsurance company or its agent of a fee to anattorney for services rendered in the examination oftitle or certification thereof." (Emphasis added).

This statute is a broad prohibition against kickbacks in the title insurance industry and

prohibits any title agent from giving any "valuable thing" as an inducement for title

insurance business. The statute has no limiting language and is mandatory, not

permissive.

2. Ohio Rev. Code §3933.01 provides:

No corporation, association, or partnershipengaged in this state in the guaranty, bonding,surety, or insurance business, other than lifeinsurance, nor any officer, agent, solicitor,employee, or representative thereof, shall pay,allow, or give, or offer to pay, allow, or give,directly or indirectly, as inducements to insurance,and no person shall knowingly receive as aninducement to insurance, any rebate of premiumpayable on the policy, or any special favor oradvantage in the dividends or other benefits toaccrue thereon, or any paid employment or contractfor services of any kind, or any special advantage inthe date of the policy or date of its issue, or anyvaluable consideration or inducement not plainlyspecified in the policy or contract of insurance oragreement of indemnity, or give, receive, sell, orpurchase, or offer to give, receive, sell, orpurchase, as inducements to insurance or inconnection therewith, any stock, bonds, or otherobligations of an insurance company or othercorporation, association, partnership, orindividual.

19

Under the language of Ohio Rev. Code §3933.01, a business entity or its agent may not

give nor receive any stocks or bonds as an inducement to insurance, or "in connection

therewith." Contrary to OAC 3901-7-04, the purpose of Ohio Rev. Code §3933.01 is to

prohibit inducements by insurance companies/underwriters and their agents from giving

selling or providing stock of the insurance company/underwriter or the insurance agent in

order to secure title insurance business.27

On August 1, 1995, then-ODI Superintendent Harold T. Duryee issued Bulletin

95-3 to "All Title Insurance Agents, Title Insurance Agencies, and Title Insurance

Companies" in Ohio. 28 The subject of Bulletin 95-3 29 was the provision of goods or

services to real estate agents, real estate brokerage offices, banks, thrifts, mortgage

originators and other entities." Bulletin 95-3 was created to provide title agents and title

insurance companies with guidelines which would assist them in complying with Ohio

Rev. Code § 3933.01 and Ohio Rev. Code § 3953.26 when engaged in marketing

functions.3I Bulletin 95-3 remains an effective policy bulletin per the Ohio Department

of Insurance and has never been rescinded.32

For the purposes of Bulletin 95-3, the term "valuable thing," as utilized in Ohio

Rev. Code § 3953.26, is defined as:

"monies, things, discounts, salaries, commissions, fees,duplicate payments of a charge, stock dividends,distributions of partnership profits, credits representingmonies that may be paid at a future date, special bankdeposits or accounts, banking terms, special loan or loan

27 Ohio Rev. Code §3933.01.28 See Ohio Department of Insurance Bulletin 95-3, Copy attached hereto as Exhibit D.29 Per OAC 101-11-01(C), a regulatory decision is defined to include both a bulletin and an administrativerule.30 Id.31 Id.32 http://www.insurance.ohio.gov/Legal/Bulletins/Pages/BulletinIndex.aso (visited April 14, 2010).

20

guarantee terms, services of all types at special or freerates, and sales or rentals at special prices or rates."33(Emphasis added).

Therefore, since at least 1995, the ODI's official interpretation of Ohio Rev. Code

§3953.26 has been to mandate that no title insurance company or title insurance agent

shall pay or give, whether directly or indirectly,34 any valuable thing -- including stock

dividends and distributions of partnership profits -- as an inducement for or as

compensation for any title insurance business. (Emphasis added).

"Title insurance business" or the "business of title insurance" is defined by Ohio

Rev. Code §3953.01 (B):

(B) "The business of title insurance" means the following:

(1) The making as insurer, guarantor, or surety, orproposing to make as insurer, guarantor, or surety, anycontract or policy of title insurance;

(2) The transacting, or proposing to transact, any phase oftitle insurance, including solicitation, negotiationpreliminary to execution, execution of a contract of titleinsurance, insuring, and transacting matters subsequent tothe execution of the contract and arising out of it, includingreinsurance;

(3) The doing or proposing to do any business in substanceequivalent to any of the foregoing.

The ODI's unambiguous interpretation of Ohio Rev. Code §3933.01 and Ohio

Rev. Code §3953.26 by Bulletin 95-3, which prohibits the giving or receiving stock

ownership of a title insurance agency and the payment of dividends in exchange for the

inducement of or referral of title insurance business, continues to be the law in Ohio.

33 ODI Bulletin 95-3 at 2,115.34 The term "indirectly" is defined in Bulletin 95-3 as being "by or through any employee, independentcontractor, or affiliate of a title insurance company or title insurance agent regardless of such employee's,independent contractor's, or affiliate's status as an individual licensee." See ODI Bulletin 95-3 at 2, ¶2.

21

However, by promulgation of OAC 3901-7-04, the ODI is permitting exceptions to these

statutory prohibitions and is therefore in conflict with the above-enumerated statutes.

Further conflict exists due to OAC3901-7-04(E) providing a list of nine (9)

factors that may be considered in determining whether an entity is in violation of Ohio

Rev. Code §3933.01 and/or Ohio Rev. Code §3953.26. Because these factors are not

inclusive, other factors may be considered as well. The ODI' s application of these

administrative factors is in conflict with the plain language of the Revised Code.

Under the nine factor test of OAC 3901-7-04(E), an arrangement that violates

Ohio Rev. Code §3933.01 or Ohio Rev. Code §3953.26 could be allowed to become or

remain licensed if the factors weigh in its favor. Therefore, it is possible for an entity to

violate Ohio Rev. Code §3933.01 and/or Ohio Rev. Code §3953.26 but not violate OAC

3901-7-04. The contradictory allowance and consideration of additional factors, which

may allow prohibited inducements for title insurance business despite the express

language of the statute, conflicts with the statutory prohibitions against the giving or

receiving of any inducements for title insurance business.

As the statute expressly prohibits any inducements, the OAC rule must be invalid

as it is possible for entities which give and receive inducements to insurance to remain

licensed. Therefore, OAC 3901-7-04 is an invalid administrative rule because it subtracts

from the force of the statutes.

E. OAC 3901-7-04 IS INVALID AS IT CONFLICTS WITH OHIO REV.CODE §3953.25 - THE TITLE INSURANCE COMMISSION STATUTE.

Ohio Rev. Code § 3953.25 provides:

"A title insurance company may pay a commissiononly to a title insurance agent as defined in

22

division (H) of section 3953.01 of the RevisedCode." (Emphasis added)

The legislative intent of Ohio Rev. Code §3953.25 was to ensure that only

licensed title insurance agents receive commissions from title insurance companies and to

prevent unlicensed parties from receiving commissions. OAC 3901-7-04 is in clear

conflict with the General Assembly's intent in enacting Ohio Rev. Code §3953.25.

An understanding of the commission structure for the sale of title insurance is

necessary to an understanding of how non-title insurance agents are de facto recipients

of title insurance commissions in contravention of Ohio Rev. Code § 3953.25. An Ohio

title insurance agent receives or retains, as a commission, eighty percent (80%) or as high

as ninety percent (90%) of the total title insurance premiums generated from the sale of

title insurance.35

According to the American Land Title Association (ALTA), since a high

proportion of the revenue generated by the one-time title insurance premium is used for

risk identification (through the title search and examination), analysis (through the title

examination and issuance of title insurance commitment component) and reduction of

claims (through curative work, proper escrow controls in the closing and processing

portion of the real estate settlement), rather than for the payment of claims, it should not

be surprising that a high proportion of the premium is paid to the agent for performing

these functions.36

35 Squeo Affidavit, supra.36 Testimony of Anne L. Anastasi, President-Elect of the American Land Title Association, "TitleInsurance Rates and Practices" May 28, 2009, before the Pennsylvania Insurance Department (copyavailable online at www.alta.org).

23

Title insurance premiums are the single largest source of revenue for a title

insurance agent or title insurance agency in Ohio. 37 The title insurance commissions

retained or paid to the title insurance agent or agency by the title insurance

company/underwriter makes up over eighty percent (80%) of the profits generated by title

insurance agencies in Ohio.38 Given that title insurance commissions make up most, if

not all of the net profit of a title insurance agency, a division of those insurance

commission-profits with non-title agents violates the prohibition of Ohio Rev. Code §

3953.25.

When the referral sources (i.e. banks, real estate firms and mortgage companies)

receive shareholder dividends, partnership profits or profits as a limited liability company

member of a CBA, there can be little doubt that title insurance commissions are being

paid to these non-title agents as an inducement for the referral of title insurance business.

This obvious sharing of title insurance commissions, disguised as dividends, partnership

profits or limited liability member profits, circumvents the statutory prohibitions against

paying commissions to non-title insurance agents. This "indirect" payment of title

commissions through dividends or sharing of profits is also prohibited by Ohio Rev.

Code § 3953.26, and Ohio Rev. Code § 3933.01 as expressed by the ODI itself in the

ODI's Bulletin 95-3, as demonstrated above.

F. OAC 3901-7-04 IS INVALID AS IT CONFLICTS WITH OHIO REV.CODE §3953.21(B) - THE PROHIBITED PERSON STATUTE.

Ohio Rev. Code § 3953.21(B) is known as the "prohibited person statute"

concerning title insurance business in Ohio. The statute prohibits banks, mortgage

37 Squeo Affidavit, supra.Squeo Affidavit, supra.

24

companies and real estate firms from being agents of title insurance

companies/underwriters.39

The ODI defines the term "agent" as contained in Ohio Rev. Code § 3953.21(B)

as having the same meaning as the term "agent" in Ohio Rev. Code § 3905.01(D) which

defines "agent" as any person that, in order to sell, solicit, or negotiate insurance, is

required to be licensed under the laws of this state, including limited lines insurance

agents and surplus line brokers.° Ohio statutory law defines the term "solicit" as the

attempt to sell insurance, or to ask or urge a person to apply for a particular kind of

insurance from a particular insurer.41

Plaintiffs contend that an ordinary understanding of how title insurance business

is conducted in Ohio would implicate each referral source -- bank, real estate firm, and

mortgage company -- as an "agent" of a title insurance company insofar as they each ask,

urge and solicit title insurance business for title insurance companies and agents alike as

part of their CBA relationships. 42 The ODI's construction of OAC 3901-7-04 allows

prohibited persons identified in Ohio Rev. Code §3953.21(B) to own an interest in a title

insurance company as long as such persons do not "control" the company (under the

ODI's definition of control). Therefore, under OAC 3901-7-04 the ODI allows the

payment of title insurance commissions to statutorily prohibited persons which, in turn,

clearly violates Ohio Rev. Code §3953.25.

Ohio Rev. Code §3953.21(B) provides in full:

39 Ohio Rev. Code § 3953.21(13).413 Ohio Rev. Code § 3905.01(D); see also, Letter from Director Mary Jo Hudson dated September 25, 2007,attached hereto as Exhibit E.41 Ohio Rev. Code § 3905.01 (0).42 Squeo Affidavit, supra.

25

"No bank, trust company, bank and trust company, or otherlending institution, mortgage service, brokerage, mortgageguaranty company, escrow company, real estate companyor any subsidiaries thereof or any individuals so engagedshall be permitted to act as an agent for a title insurancecompany."

The plain language of OAC 3901-7-04 does not prevent these entities mentioned

in §3953.21(B) from acting as title insurance agents. Under ODI's construction of 3901-

7-04, entities that would be statutorily prohibited from being licensed as a title insurance

agency by the ten percent (10%) control provision of the Ohio Revised Code are allowed

to be licensed as long as they do not have at least fifty percent (50%) control. Cf. Ohio

Rev. Code §3901.32(B) and OAC 3901-7-04(C)(2).

As the business entities prohibited from acting as a title insurance agency under

Ohio Rev. Code §3953.21(B) are not necessarily prohibited from acting in such a manner

under the ODI's construction of OAC 3901-7-04, the ODI has effectively nullified the

import of the statutory provision. Clearly, ODI's construction of OAC 3901-7-04

conflicts with Ohio Rev. Code §3953.21(B) as under the administrative rules a bank, trust

company, etc. could act as a title insurance agency as long as said entity does not control

fifty percent (50%) or more of the voting securities. However, under Ohio Rev. Code

§3953.32(B) a bank, trust company, etc. is strictly prohibited from acting as a title

insurance agency.

The Ohio legislature is no stranger to promulgating laws that seek to bar access

and entry into the title insurance arena. In 1971, the Ohio General Assembly enacted

Ohio Rev. Code §3953.03, which barred any other surplus line insurer (i.e. property,

casualty, life, etc.) from entering into the business of title insurance. 43 For example, an

43 Ohio Rev. Code §3953.03.

26

insurer such as Nationwide Insurance or Allstate may not engage in the business of title

insurance as a result of this statute. To further lock title insurance away from other lines

of insurance, the Ohio General Assembly also enacted Ohio Rev. Code §3953.10, which

prevented title insurers from engaging in any other form of insurance. 44 Thus, an insurer

like Chicago Title Insurance Company -- Ohio's largest title insurer -- may not enter the

property and casualty insurance industry as a result of this statute.

Considering the fact that the Ohio General Assembly thought it necessary to keep

the title insurance industry completely shut off from the rest of the insurance world by

barring any access or entry with the aforementioned statutes, it makes no sense to think

that they would have intended to allow non-title insurance agents or persons otherwise

prohibited from being title insurance agents the ability to own or control title insurance

agencies, thereby avoiding the monoline restrictions and licensing prohibitions found

elsewhere in the Revised Code. The fact that the ODI has been taking unilateral steps

through promulgation of OAC 3901-7-04 to circumvent the Ohio legislature's historic

access prevention efforts into the title insurance industry must be seen as a prime

example of unreasonable conduct in direct conflict with the Ohio Revised Code.

Clearly the agency rule is in direct conflict with the statutory law, thus the agency

rule is invalid. As the administrative rule is invalid, Plaintiffs are entitled to judgment as

a matter of law.

G. OAC 3901-7-04 IS INVALID AS IT CONFLICTS WITH OHIO REV. CODE

§3901.21(E).

Ohio Rev. Code § 3901.20 states:

"No person shall engage in this state in any tradepractice which is defined in sections 3901.19 to

44 Ohio Rev. Code §3953.10.

27

3910.23 of the Revised Code as, or determinedpursuant to those sections to be, an unfair ordeceptive act or practice in the business ofinsurance."

Ohio Rev. Code § 3901.21 provides:

"The following are hereby defined as unfair anddeceptive acts or practices in the business ofinsurance:

(E) Issuing or delivering or permitting agents,officers, or employees to issue or deliver agencycompany stock or other capital stock or benefitcertificates or shares in any common-lawcorporation or securities or any special or advisoryboard contracts or other contracts of any kindpromising returns and profits as an inducementto insurance." (Emphasis added).

This statute defines the issuing or delivering of company stock promising returns

and profits as inducement to insurance as being an unfair insurance practice and

otherwise prohibited under Ohio law. Plaintiffs contend that the ODI has received

license applications from CBAs and prohibited person-owned title insurance agencies and

has approved or otherwise licensed applicants in which stock was given to a prohibited

person referral source (i.e. bank, mortgage company or real estate firm) in exchange for

the referral of that source's business (i.e. their banking, mortgage or real estate

customers). Through the promulgation of OAC 3901-7-04, the ODI has created an

administrative exception to these statutory prohibitions, where no such authority was

meant to exist and in direct conflict with the above-captioned statutes.

The language of OAC 3901-7-04, allows for the licensing of title insurance

agencies whose stock ownership was issued or delivered to third parties promising

28

returns and profits as an inducement to insurance, including but not limited to, those

parties who are prohibited from acting as agents of title insurance companies pursuant to

Ohio Rev. Code §3953.21(B) and holding companies whose shareholder(s) own an

interest in or otherwise "control" persons prohibited from acting as an "agent" of a title

insurance company pursuant to Ohio Rev. Code §3953.21(E).

OAC 3901-7-04(E) provides that an entity cannot remain licensed or become

licensed if "it is merely a sham arrangement used as a conduit for inducements or

compensation for business payments in violation of Ohio Rev. Code §3953.26 and/or

Ohio Rev. Code §3933.01 of the Revised Code." However, the language of this

administrative rule does not disallow the prohibited stock inducement behavior of Ohio

Rev. Code §3901.21(E).

Further, as stated previously herein, the language of the ODI' s own interpretative

bulletin, Bulletin 95-3 issued on August 1, 1995, defines a "valuable thing" under Ohio

Rev. Code § 3953.26 as including "stock dividends" and "distributions of partnership

profits". Bulletin 95-3 still represents the ODI' s interpretation of ORC § 3953.26 and

reiterates the definition of "valuable thing" to include stock dividends and partnership

distributions. Thus, in order to even arrive at a consideration of whether an entity can

meet the threshold tests established by OAC 3901-7-04, the entity would have to

demonstrate that no valuable thing -- i.e., no stock dividend or distribution of partnership

profits among owners -- was exchanged for title insurance business under Ohio Rev.

Code §3953.26. Simply put, an entity may not be co-owned by a referral source if it is to

qualify for licensure under Ohio Rev. Code §3953.21 or avoid scrutiny for violating

Ohio's broad anti-kickback statute under Ohio Rev. Code §3953.26. Because the ODI

29

has regularly received license applications from CBAs in which the corporate structures

illustrated co-ownership and because these dividends are regularly given as an

inducement for title insurance business in the CBA model, OAC 3901-7-04 is in direct

conflict with the statutory authority and must be declared invalid.

OAC 3901-7-04 allows for the continued licensing of title insurance entities that

promise returns and profits as an inducement to insurance. Therefore, OAC 3901-7-04

permits behavior that is strictly prohibited by Ohio Revised Code.

As discussed more fully above, an administrative rule is invalid if it is in clear

conflict with a statutory provision. Cent. Ohio Joint Vocational School Dist. Bd. of Edn.,

at 10, 487 N.W.2d at 292. Ohio Rev. Code §3901.21(E) expressly prohibits agents,

officers, or employees of title insurance entities from promising returns and profits as an

inducement to insurance. OAC 3901-7-04 does not prohibit such action; therefore it

impliedly allows such action even though it is in direct violation of statutory law.

Accordingly, as OAC 3901-7-04 is in direct conflict with the statute, the rule is invalid.

As this administrative rule is clearly invalid, Plaintiffs are entitled to judgment as a

matter of law.

CONCLUSION

For the foregoing reasons Plaintiffs are entitled to judgment as a matter of law.

Even in the light most favorable to Defendant, it is undisputed that OAC 3901-7-04

clearly conflicts with the Ohio Revised Code. As there is clear conflict with the statute,

the administrative rule is invalid. Accordingly, Plaintiffs' Motion for Summary

Judgment must be granted.

30

Gregor / app, Esq. (000Attorney at Law

Respectfully submitted,

Trial Counsels for Plaintiffs

31

CERTIFICATE OF SERVICE

A copy of the foregoing Motion for Summary Judgment was served via ordinaryU.S. Mail, postage prepaid, this 16th day of April, 2010 to the following counsels ofrecord:

W. Scott Myers, Esq.Sean M. Culley, Esq.Assistant Attorneys GeneralHealth and Human Services Section30 East Broad Street, 26th floorColumbus, OH 43215-3400

32

EXHIBIT A

STATE OF OHIOSS:

COUNTY OF FRANKLIN

I, Steven T. Squeo, being first duly cautioned and sworn, state as follows:

1. That I am a licensed title agent with the Ohio Department of Insurance and over the ageof eighteen (18), am competent to testify to the matters contained herein and I make thisAffidavit based upon facts within my personal knowledge and experience.

2. I am the Vice President of Eagle Land Title Agency, Inc. and have been employed in thetitle insurance industry in Ohio since 1984.

3. As part of my regular and customary functions as Vice President of Eagle Land TitleAgency, Inc., I regularly review the financial records for our company including balancesheets and profit and loss statements.

4. As part of my regular and customary functions as Vice President of Eagle Land TitleAgency, Inc., I also participate in the contract negotiations that determine the splitbetween a title insurance underwriter's share of the title insurance premiums and ouragency's share of the title insurance premiums derived from the sale of title insurance.

5. I am the Treasurer of the Ohio Association of Independent Title Agents (OAITA) andhave personal knowledge of the customs and practices of the title insurance industry as itimpacts independent title insurance agents in the State of Ohio.

6. I am a founding member of the National Association of Independent Land Title Agents(NAILTA).

7. Based upon my experience, education, training and background in the title insuranceindustry, I have personal knowledge of the customs and practices of the title industry andof the facts asserted in this affidavit.

8. In Ohio, title insurance agents typically retain 80% to 90% of the gross title insurancepremiums derived from the sale of title insurance policies.

9. The remaining 20% to 10% of the gross title insurance premiums derived from the sale oftitle insurance policies are then remitted to the title insurance company/underwriterpursuant to the agency agreement between the title insurance agent and the title insurancecompany/underwriter.

10. Based upon my experience, training, education and background in the title insuranceindustry, between 80% to 90% percent of the gross revenues obtained by a title insurance

1

agency are derived from the sale of title insurance policies and the corresponding titleinsurance commissions it receives for doing same.

11. Over the past ten years, our company has been approached by banks, real estate firms,mortgage companies, homebuilders and developers regarding the establishment of orcreation of affiliated controlled business arrangements wherein the bank, real estate firm,mortgage company, homebuilder and/or developer would own up to 49% of the stock,partnership or membership interest in the affiliated title insurance agency. In exchangefor a share of profits either through stock dividends or profit distributions the bank, realestate firm, mortgage company, homebuilder and/or developer offered to refer or steer ofall or substantially all of their clients' title insurance business-needs to the affiliated titleinsurance agency established. As a licensed Ohio title insurance agency, my companyhas refused to engage in such activity due our company's firm belief that such acontrolled business arrangement and the sharing of profits earned from title insurancecommissions are against Ohio law.

12. Over the past ten years I have become aware of numerous title insurance agencies that arelicensed by the Ohio Department of Insurance that have formed affiliated controlledbusiness arrangements with banks, real estate firms, mortgage companies, homebuildersand developers where stock or membership interests and their respective stock dividendsor profit share are provided in exchange for the referral or steering of all or substantiallyall of their clients' title insurance business-needs to the affiliated title insurance agencyestablished by—those same banks, real estate firms, mortgage companies, homebuildersand developers.

13. Over the past ten years I have become aware of holding companies that hold the stock orother ownership units of an Ohio real estate company and a title insurance agencylicensed by the Ohio Department of Insurance, in which all or substantially all of the realestate company's clients' title insurance business-needs are routinely referred or steeredto the real estate agency's "sister-brother" title insurance agency.

14. I am also aware of real estate companies providing pre-typed purchase agreements totheir clients with the name of a title insurance agency pre-typed in the purchaseagreement. The real estate company owns stock in or holds a membership interest in thenamed title insurance agency.

15. Since 80% to 90% of the gross revenues obtained by a title insurance agency are derivedfrom the sale of title insurance policies, and the corresponding title insurancecommissions generated from same, the "sister-brother" title insurance agency of aholding company and the title insurance agency established as a controlled businessarrangement are, in fact, splitting and paying title insurance commissions with/to non-title insurance agents when they provide stock dividends or membership profitdistributions from the title insurance generated commissions to their to the owners oftheir "sister-brother" real estate company or the affiliated real estate company/agentpartner or member.

2

Subscribed to and sworn before me this 16

16. I am personally aware that the Ohio Department of Insurance is staffed with one full-timeemployee dedicated to the business of title insurance and that investigators from the fraudand enforcement sections assist with title insurance-related issues on a part-time basis.

NOMIMARY.POOK SINE orotli

I MY COMMISSMEOMEINCIPEN 20$2I

3

EXHIBIT BB

3901-7-04 Title insurance controlled business arrangements.

(A) Purpose. The purpose of this rule is to establish ownership and licensingstandards for title insurance agents and agencies in accordance with division (B)of section 3953.21 of the Revised Code, which prohibits certain persons fromacting as agents for a title insurance company.

(B) Authority. This rule promulgated pursuant to the authorityvested in the superintendent under section3901.041 of the Revised Code.

(C) Definitions. As used in this rule:

(1) Beneficial ownership means the effective ownership of anyinterest in a title insurance agency or the right to control anownership interest even though legal ownership may beheld in another persons name.

(2) Control, including controlling, controlled by, and under common controlwith means the possession, direct or indirect, of the power to direct orcause the direction of the management and policies of a person, whetherthrough the ownership of voting securities, by contract other than acommercial contract for goods or non-management services, or otherwise.Control shall be presumed to exist if any person, directly or indirectly,owns, controls, holds with the power to vote, or holds proxies representingfifty percent or more of the voting securities or interests of any otherperson. Control shall also be presumed to exist between a natural personand an immediate family member. These presumptions may be rebutted byshowing that control does not exist in fact. The superintendent ofinsurance may determine that control exists if the facts support such adetermination notwithstanding the absence of a presumption to that effect.

(3) Immediate family member includes a persons father, mother, stepfather,stepmother, brother, sister, stepbrother, stepsister, son, daughter, stepson,stepdaughter, grandparent, grandson, granddaughter, father-in-law,mother-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law,the spouse of any of the foregoing, and the persons spouse.

(4) Person means any natural person or any business entity as defined indivision (A) of section 3905.01 of the Revised Code.

34

(5) Prohibited person means a person prohibited from acting as an agent for atitle insurance company pursuant to division (B) of section 3953.21 of theRevised Code, and includes builders and developers.

(6) ESPA means the Real Estate Settlement Procedures Act, 12 U.S.C. 2601et seq., as amended, and all rules, regulations and interpretations issuedunder RESPA, as amended, including but not limited to 24 C.F.R. Part3500 and the Statement of Policy 1996-2 Regarding Sham ControlledBusiness Arrangements found at 61 Fed. Reg. 29258 et seq.

(D) No business entity may be licensed as a title insurance agency where oneor more prohibited persons control the business entity.

(E) A business entity may not become licensed or remain licensed where theentity is merely a sham arrangement used as a conduit for inducements orcompensation for business payments in violation of section 3953.26 and/orsection 3933.01 of the Revised Code. In determining whether an entity is asham arrangement, the superintendent may consider factors similar tothose used to determine whether a controlled business arrangement is asham arrangement under RESPA, including, but not limited to:

(1) Does the new entity have sufficient initial capital and net worth, typical ofthe industry, to conduct the title insurance business for which it wascreated or is it undercapitalized to do the work it purports to provide?

(2) Is the new entity staffed with its own employees to perform the services itprovides or does the new entity have loaned employees of one of theparents?

(3) Does the new entity manage its own business affairs or is the new entitybeing run by one of the parents?

(4) Does the new entity have a office for business which is separate from anyof the parents? If the new entity is located at the same business address asone of the parents, does the new entity pay fair market value rent for thefacilities actually furnished?

(5) Is the new entity providing substantial services, i.e., the essential functionsof the real estate settlement service, for which it receives a fee?

(6) Does the new entity perform all of the substantial services itself or does itcontract out part of the work? If so, how much work is contracted out?

(7) If the new entity contracts out some of its essential functions does itcontract services from an independent third party or from a parent oraffiliate of a parent? If the new entity contracts out work to a parent or toan affiliate of a parent, does the new entity provide any functions that areof value to the settlement process?

(8) If the new entity contracts out work to another party, is the partyperforming any contracted services receiving a payment for the services or

35

facilities that bears a reasonable relationship to the value of the goods orservices received?

(9) Is the new entity actively competing in the marketplace for business ordoes it provide services solely for one or more of the parents?

(F) Where a person has a direct or beneficial ownership interest in a businessentity title insurance agent, the only thing of value that can flow from suchan arrangement, other than permissible payments for services rendered, isa return on ownership interest.

(1) Under this rule, a return on ownership interest may not include any of thefollowing:

(a) Any payment which has, as a basis of calculation, no apparentbusiness motive other than distinguishing among recipients ofpayments on the basis of the amount of their actual, estimated oranticipated referrals;

(b) Any payment which varies according to the relative amount ofreferrals by different recipients of similar payments; or

(c) A payment based on an ownership, partnership or joint venture sharewhich has been adjusted on the basis of previous relative referrals byrecipients of similar payments.

(2) In determining whether a payment is a return on an ownership interest oran impermissible payment for the referral of title insurance business, thesuperintendent may consider factors similar to those used to determinewhether a payment is an impermissible payment for a referral underRESPA.

(G) A prohibited person may not serve as a partner, officer, director, ormanaging member of a title insurance agency, nor may a prohibited personbe involved in the day-to-day operations of the title agency.

(II) Paragraph (D) of this rule applies to all persons applying for a businessentity title insurance agent license on or after the effective date of this ruleand to all business entity title insurance agents having a change inownership on or after the effective date of this rule.

(I) Severability. If any section, term or provision of this rule be adjudged tobe invalid for any reason, such judgment shall not affect, impair, orinvalidate any other section, term, or provision of this rule, but theremaining sections, terms and provisions shall be and continue in fullforce and effect.

36

EXHIBIT C

Westlaw.

Page 1Not Reported in N.E.2d, 2007 WL 4340280 (Ohio App. 10 Dist.), 2007 -Ohio- 6641(Cite as: 2007 WL 4340280 (Ohio App. 10 Dist.))

H

Tyack, J., filed dissenting opinion.

CHECK OHIO SUPREME COURT RULES FORREPORTING OF OPINIONS AND WEIGHT OF

LEGAL AUTHORITY.

Court of Appeals of Ohio,Tenth District, Franklin County.

Lorrie A. COSBY, Plaintiff-Appellant,v.

FRANKLIN COUNTY DEPARTMENT OF JOBAND FAMILY SERVICES, Defendant-Appellee.

No. 07AP-41.

Decided Dec. 13, 2007.

Background: Daycare provider who had pledguilty to forgery many years earlier appealed froman order of county department of job and familyservices revoking her certification to operate a"type B family day-care home" based on a recently-effective statute barring persons who have pledguilty to forgery from owning or operating such afacility. The Court of Common Pleas, FranklinCounty, No. 96CVF-6931, affirmed. Provider ap-pealed.

Holdings: The Court of Appeals, Bryant, J., heldthat:(1) statute applied retroactively;(2) provider had no vested right to own or operatetype B facility, such that retroactive application ofthe statute to her was constitutional;(3) trial court's erroneous conclusion that statute ap-plied only prospectively was harmless;(4) department was not estopped from revokingprovider's certification; and(5) administrative rule providing a very limited ex-ception to statute for felony offenders did not con-flict with statute.

Affirmed.

[1] Infants 211 €17.5

211 Infants21111 Protection

211k17.5 k. Child Care. Most Cited CasesOn daycare provider's appeal from trial court's af-firmance of revocation of her certification bycounty department of job and family services, de-partment failed to prove that provider filed originalcopy of her notice of appeal in original appeal fromdepartment's order with court of common pleasrather than with department, as would deprive trialcourt of jurisdiction to decide the appeal and war-rant dismissal of appeal from trial court's order; re-cord of the administrative proceedings, includingthe notices of appeal, was missing from the appel-late record, thereby preventing a comparison of thenotices filed with court and with department in theoriginal appeal. R.C. § 119.12.

[2] Infants 211 C=17.5

211 Infants21 III Protection

211k17.5 k. Child Care. Most Cited CasesStatute barring a person "who has been convictedof or pleaded guilty to" forgery, among other of-fenses, from owning or operating a "type B familyday-care home" applied retroactively to daycareprovider who had pled guilty to forgery nearly 20years before statute became effective; statutory lan-guage clearly expressed a legislative intent for thestatute to apply retroactively to persons with con-victions or guilty pleas predating the effective dateof the statute. Const. Art. 2, § 28; R.C. § 5104.09.

[3] Infants 211 €17.5


211k17.5 k. Child Care. Most Cited CasesDaycare provider, who pled guilty to forgery nearly20 years before effective date of statute barring a

© 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.

Page 2Not Reported in N.E.2d, 2007 WL 4340280 (Ohio App. 10 Dist.), 2007 -Ohio- 6641(Cite as 2007 WL 4340280 (Ohio App. 10 Dist))

person who has pled guilty to forgery from owningor operating a "type B family day-care home," hadno vested right to own or operate such a facility,and thus county department of job and family ser-vices' retroactive application of statute to revokeprovider's certification to operate such a facility didnot violate constitution's retroactivity clause, eventhough provider had operated such a facility for tenyears when statute became effective; provider's cer-tification was a license, which had always been re-vocable, or subject to non-renewal, if provider viol-ated child care laws. Const. Art. 2, § 28; R.C. §§119.01(B), 5104.09, 5104.11(C); OAC5101:2-14-06(B, C).

[4] Infants 211 €17.5


211k17.5 k. Child Care. Most Cited CasesTrial court's erroneous conclusion that statute bar-ring a person who has been convicted or pled guiltyto forgery, among other offenses, from owning oroperating a "type B family day-care home" appliedonly prospectively was harmless in daycare pro-vider's appeal from the revocation of her certifica-tion to operate such a facility by county departmentof job and family services, where provider did nothave a vested right to operate such a facility, suchthat retroactive application of the statute to her didnot violate constitution's retroactivity clause. Const.Art. 2, § 28; R.C. § 5104.09.

[5] Infants 211 €.17.5


211k17.5 k. Child Care. Most Cited CasesCounty department of job and family services,which renewed daycare provider's certification tooperate a "type B family day-care home" after ef-fective date of statute barring persons who havebeen convicted of or pled guilty to forgery, amongother offenses, from owning or operating such a fa-cility, was not thereby estopped from revoking pro-vider's certification; department was performing a

governmental function when it revoked provider'scertification on the basis of her guilty plea to for-gery from nearly 20 years earlier. R.C. §§ 5104.09,5104.11(B).

[6] Infants 211 €=17.5


211k17.5 k. Child Care. Most Cited CasesCounty department of job and family services,which renewed daycare provider's certification tooperate a "type B family day-care home" after ef-fective date of statute barring persons who havebeen convicted of or pled guilty to forgery, amongother offenses, from owning or operating such a fa-cility, was not barred from revoking provider's cer-tification by the doctrines of laches or waiver, evenif such doctrines were applicable to department;five-month period between the renewal and the re-vocation was not unreasonable, and provider, whohad pled guilty to forgery nearly 20 years earlier,did not show any material prejudice resulting fromthe delay. R.C. § 5104.09.

[7] Infants 211 €17.5


211k17.5 k. Child Care. Most Cited CasesAdministrative rule enacted pursuant to statute bar-ring persons convicted of certain offenses fromowning or operating a "type B family day-carehome," which allowed felony offenders to own oroperate such a facility only if the offender wasgranted an unconditional pardon or the guilty pleawas set aside, did not conflict with section of stat-ute allowing director of job and family services toadopt rules specifying exceptions for offenders who"meet rehabilitation standards set by the depart-ment"; exception for misdemeanor offenders wasless restrictive than rule for felony offenders, anddirector had broad discretion to adopt rules safe-guarding children receiving child care. R.C. §5104.09(D); OAC 5101:2-14-11(N, Q).


Not Reported in N.E.2d, 2007 WL 4340280 (Ohio App. 10 Dist.), 2007 -Ohio- 6641(Cite as: 2007 WL 4390280 (Ohio App. 10 Dist.))

Page 3

Appeal from the Franklin County Court of Com-mon Pleas.Steven Mathless, for appellant.

Ron O'Brien, Prosecuting Attorney, and R. Mat-thew Colon, for appellee.

BRYANT, J.

*1 1} Plaintiff-appellant, Lorrie A. Cosby, ap-peals from a judgment of the Franklin County Courtof Common Pleas affirming an order of the Frank-lin County Department of Job and Family Services("FCDJFS") that revoked plaintiffs certificationand contract to operate a type B family day-carehome and dismissed plaintiffs appeal of that order.Because the agency's revocation order is in accord-ance with law, we affirm the trial court's judgment.

2} The material facts are not in dispute. In 1995,FCDJFS certified plaintiff pursuant to R.C. 5104.11to operate a type B family day-care home providingpublicly funded child care. See R.C. 5104.01(F). Toreceive certification as a publicly funded child careprovider, plaintiff was required by statute to com-ply with the child care laws in R.C. Chapter 5104and any rules adopted under the chapter. See R.C.5104.11, 5104.31 and 5104.32(B)(4). See, also,Ohio Adm.Code 5104:2-14 (setting forth the ad-ministrative rules regarding certification of type Bday-care homes). Plaintiffs type B day-care certi-fication was valid for 12 months but was subject toearlier revocation if FCDJFS determined revocationwas necessary; the certification was renewable an-nually upon plaintiffs continued compliance withthe child care statutes and rules. R.C. 5104.11,5104.32(B)(4).

3} When FCDJFS initially certified plaintiff in1995 as a type B family day-care provider, the childcare laws then in effect prohibited persons who hadbeen convicted of or pleaded guilty to certain crim-inal offenses, not including forgery, from operatinga type B family day-care home. See R.C.5104.013(D) as enacted by Am.H.B. No. 694, ef-fective November 11, 1994, and R.C. 5104.09 as

enacted by Am.Sub.S.B. No. 38, effective October29, 1993. Effective May 18, 2005, the General As-sembly amended the child care laws to prohibit per-sons convicted of additional disqualifying offensesincluding forgery, a felony offense codified at R.C.2913.31, from owning or operating a type B day-care home. See R.C. 5104.013(D)(2)(a) and5104.09(A)(1)(b). The General Assembly made theprohibitions expressly subject to agency "rules spe-cifying exceptions to the prohibitions in [R.C.5104.013 and 5104.09] for persons who have beenconvicted of an offense listed in the statutes] butmeet rehabilitation standards set by the [agency]."See R.C. 5104.013(G) and 5104.09(D). The rulesadopted under R.C. 5104.013(G) and 5104.09(D)are set forth in Ohio Adm.Code 5101:2-14-11(N)and (0) for misdemeanor offenders and (Q) forfelony offenders.

{11 4} From 1996 to 2005, FCDJFS annually re-newed plaintiffs certification as a type B day-careprovider, last contracting with her in November2005 for a one-year re-certification period com-mencing on December 1, 2005. Acting pursuant torules set forth in Ohio Adm.Code 5101:2-14-06(B)and (C), and 5101:2-14-11(B), FCDJFS notifiedplaintiff in March 2006 it intended to revoke hercertification and contract to operate a type B day-care home because her criminal history made hernon-compliant with R.C. 5104.09(A)(1)(b) andOhio Adm.Code 5101:2-14. Specifically, plaintiffscriminal history reflects she pleaded guilty in 1986to multiple counts of felony forgery, for which shewas ordered to serve concurrent one and one-halfyear terms of imprisonment; the sentence was sus-pended, and she completed a court-ordered five-year probationary period in 1991.

*2 IT 5} Plaintiff requested an administrative hear-ing under Ohio Adm.Code 5101:2-14-40 for a re-view of the proposed revocation of her certificationto provide publicly funded child care. Following aMay 4, 2006 hearing on the matter, the hearing of-ficer concluded (1) the May l8, 2005 amendment toR.C. 5104.09, prohibiting felony forgery offenders


Page 4Not Reported in N.E.2d, 2007 WL 4340280 (Ohio App. 10 Dist.), 2007 -Ohio- 6641(Cite as 2007 WL 4340280 (Ohio App. 10 Dist.))

from owning or operating a type B day-care home,applies retroactively to plaintiff, and (2) the applic-able child care statutes and administrative rules"are very clear" that plaintiff's forgery offenses dis-qualify her as a type B day-care provider. On May17, 2006, the hearing officer issued an order affirm-ing FCDJFS' decision to revoke plaintiffs contractand certification to own or operate a type B familyday-care home.

6} Pursuant to R.C. 119.12, plaintiff appealedFCDJFS' revocation order to the Franklin CountyCourt of Common Pleas. Finding the order suppor-ted by reliable, probative, and substantial evidenceand in accordance with law, the court affirmed theagency's revocation of plaintiffs contract and certi-fication to operate a type B family daycare homeand entered judgment dismissing her appeal.Plaintiff appeals, assigning the following errors:

1. The trial court erred in ruling that the hearingofficer's decision was supported by reliable, pro-bative and substantial evidence and that R.C.5104.09 was applied prospectively rather thanretroactively to Appellant.

2. The trial court erred in failing to find thatFCDJFS erred in revoking Appellant's license onthe basis of a violation of 5104.09 because theagency renewed her license on or about Novem-ber 9, 2005 for one year knowing that she had afelony conviction for forgery. The agency is pro-hibited from revoking Appellant's license underthe doctrine of waiver, !aches, and estoppel.

3. OAC 5101:2-14-06 which bars convictedfelons from running Type B Family Day CareHomes even unless [sic] they receive a pardonfrom the governor is in conflict with R.C.5104.09(D) which requires that the director ofjob and family services shall adopt rules whichallow persons who have been convicted of an of-fense listed in that division but meet rehabilita-tion standards to run Type B Family Day CareCenters.

{II 7} Under R.C. 119.12, when a common pleascourt reviews an order of an administrative agency,the common pleas court must consider the entire re-cord to determine whether the agency's order issupported by reliable, probative, and substantialevidence and is in accordance with law. Univ. ofCincinnati v. Conrad (1980), 63 Ohio St.2d 108,110-111, 407 N.E.2d 1265. In its review, the com-mon pleas court must give due deference to the ad-ministrative agency's resolution of evidentiary con-flicts, but the findings of the agency generally arenot conclusive. Id. at 111, 407 N.E.2d 1265.

IT 8} An appellate court's review of an administrat-ive decision is more limited than that of a commonpleas court. Pons v. Ohio State Med. Bd. (1993), 66Ohio St.3d 619, 621, 614 N.E.2d 748, rehearingdenied, 67 Ohio St.3d 1439, 617 N.E.2d 688. Whilethe common pleas court must review the evidence,this is not a function of the appellate court. Id. Theappellate court is to determine only whether thecommon pleas court abused its discretion. Id. Ab-sent an abuse of discretion, a court of appeals maynot substitute its judgment for that of an adminis-trative agency or the common pleas court. Pons,supra. An appellate court does, however, have plen-ary review of questions of law. Univ. Hosp., Univ.of Cincinnati College of Medicine v. State Emp. Re-lations Bd. (1992), 63 Ohio St.3d 339, 587 N.E.2d835, paragraph one of the syllabus; Nye v. Ohio Bd.of Examiners of Architects, 165 Ohio App.3d 502,847 N.E.2d 46, 2006-Ohio-948, at 11.

*3 [1] 9} As a threshold matter, we must addresswhether plaintiff complied with the dual filing re-quirements of R.C. 119.12, which governs appealsfrom agency decisions. The Supreme Court of Ohiorecently construed the filing requirements and con-cluded that to perfect an appeal of an agency de-cision "[a] party aggrieved by an administrativeagency's order must file the original notice of ap-peal with the agency and a copy with the court ofcommon pleas." Hughes v. Ohio Dept. of Com-merce, 114 Ohio St.3d 47, 868 N.E.2d 246,2007-Ohio-2877, paragraph two of the syllabus.

0 2010 Thomson Reuters. No Claim to Orig. US Gov. Works.


The Supreme Court of Ohio concluded the commonpleas court lacks jurisdiction over an administrativeappeal if the aggrieved party does not strictly com-ply with R.C. 119.12 when filing the notice of ap-peal. Id. at 52-53, 868 N.E.2d 246. See, also, Nibertv. Ohio Dept. of Rehab. & Corr. (1998), 84 OhioSt.3d 100, 702 N.E.2d 70 (concluding a party's fil-ing a copy of a notice of appeal under R.C. 119.12is jurisdictional).

{¶ 10} Here, FCDJFS contends the common pleascourt lacked subject matter jurisdiction overplaintiffs administrative appeal because, contraryto the filing requirements in R.C. 119.12, plaintifffiled an original notice of appeal with the court anda copy of the notice of appeal with the agency, asevidenced by the certificate of service on the noticeof appeal filed with the court of common pleas.

I'll 111 Our review of this issue is hampered by thefact that the record of the administrative proceed-ings, including the notice of appeal filed with theagency, is missing from this court's record. Thiscourt has conducted an exhaustive search for the re-cord of proceedings and has been unable to locateit. As part of our search, counsel for both partieswere contacted. Counsel for plaintiff, believing therecord of proceedings may never have been filedwith the court, filed a motion to add an additionalassignment of error that the case be dismissed forFCDJFS' failure to prepare and certify the record ofproceedings from the agency. Counsel for FCDJFSfiled a motion to supplement the record with a doc-ument receipt showing the agency receivedplaintiffs court documents at 11:44 a.m. on May26, 2006, and plaintiffs notice of appeal was filedwith the court at 10:50 a.m. on May 26, 2006.

{II 12} We deny the motion to add an assignment oferror and grant the motion to supplement the re-cord. The official court docket indicates the recordof proceedings was filed with the common pleascourt, and the decision of that court indicates it re-viewed the record. We can only conclude the recordof proceedings was lost following the proceedingsin the common pleas court. We thus have no way to

compare the notice of appeal filed in the commonpleas court with that filed with the agency. BecauseFCDJFS asserts lack of subject matter jurisdiction,it has the burden to show plaintiff failed to complywith the filing requirements of R.C. 119.12. FCD-JFS is unable to meet that burden due to the miss-ing record. Therefore, FCDJFS' argument lacksmerit insofar as it contends this administrative ap-peal should be dismissed on jurisdictional grounds.

*4 13 } In addressing the merits of the appeal, wenote the parties do not dispute the material facts,and our inquiries here do not center on whether thecommon pleas court erred in finding FCDJFS' orderwas based on reliable, probative or substantial evid-ence. Rather, in each of plaintiffs assignments oferrors we review whether the common pleas courterred in finding the agency's order to be in accord-ance with law.

I. First Assignment of Error

[2] {11 14} In her first assignment of error, plaintiffcontends (1) FCDJFS erred in retroactively apply-ing R.C. 5104.09, as amended effective May 18,2005, and (2) the common pleas court erred in de-termining that FCDJFS applied the amended statuteprospectively in this case. Plaintiff argues the stat-ute's amendment applies prospectively only, and itsretroactive application violates Section 28, ArticleII of the Ohio Constitution.

15} Section 28, Article II of the Ohio Constitu-tion prohibits the General Assembly from passingretroactive laws and protects vested rights fromnew legislative encroachments. Smith v. Smith, 109Ohio St.3d 285, 847 N.E.2d 414, 2006-Ohio-2419,at ¶ 6, citing Vogel v. Wells (1991), 57 Ohio St.3d91, 99, 566 N.E.2d 154. "The retroactivity clausenullifies those new laws that 'reach back and createnew burdens, new duties, new obligations, or newliabilities not existing at the time [the statute be-comes effective].' "Bielat v. Bielat (2000), 87 OhioSt.3d 350, 352-353, 721 N.E.2d 28, quoting Millerv. Hixson (1901), 64 Ohio St. 39, 51, 59 N.E. 749.



Any prohibition against retroactive laws pertainingto legislative enactments applies to rules and regu-lations that administrative agencies promulgate. SeeMartin v. Ohio Dept. of Human Serv. (1998), 130Ohio App.3d 512, 720 N.E.2d 576 (addressing ret-roactivity of regulation regarding Medicaid eligibil-ity); Murphy v. Ohio Dept. of Highway Safety(1984), 18 Ohio App,3d 99, 481 N.E.2d 648(subjecting an agency's regulation to retroactivityanalysis); Fraternal Order of Police v. Hunter(1975), 49 Ohio App.2d 185, 360 N.E.2d 708(finding rule that administrative agency promul-gated was subject to prohibitions against retroactivelaws).

16} In determining whether a statute is imper-missibly retroactive under Section 28, Article II, weemploy a two-part test, involving both statutory andconstitutional analyses. State v. Walls, 96 OhioSt.3d 437, 775 N.E.2d 829, 2002-Ohio-5059, at10; Smith, supra. Because R.C. 1.48 establishes apresumption that statutes operate prospectivelyonly, "[t]he issue of whether a statute may constitu-tionally be applied retrospectively does not ariseunless there has been a prior determination that theGeneral Assembly specified that the statute so ap-ply." Van Fossen v. Babcock & Wilcox (1988), 36Ohio St.3d 100, 522 N.E.2d 489, paragraph one ofthe syllabus. If there is no " 'clear indication of ret-roactive application, then the statute may only ap-ply to cases which arise subsequent to its enact-ment.' " (Emphasis sic.) Id. at 106, 522 N.E.2d 489,quoting Kiser v. Coleman (1986), 28 Ohio St.3d259, 262, 503 N.E.2d 753. Nonetheless, if we find a"clearly expressed legislative intent" that a statuteis to apply retroactively, we proceed to the secondstep, which analyzes whether the challenged statuteis remedial or substantive. State v. Cook (1998), 83Ohio St.3d 404, 410, 700 N.E.2d 570; Smith, supra;Bielat, supra, at 353, 721 N.E.2d 28.

*5 {11 17} Plaintiff contends R.C. 5104.09 operatesprospectively only. She argues that when the legis-lature amended R.C. 5104.09 effective May 18,2005 to prohibit felons convicted of forgery and

other disqualifying offenses from operating type Bday-care homes, it did not include language in thestatute expressly stating the prohibition is to be ap-plied "retroactively" or "retrospectively." Plaintiffasserts that absent such express language in thestatute, this court must presume the legislature in-tended R.C. 5104.09's amendment to apply pro-spectively only.

{¶ 18} In construing a statute, a court's paramountconcern is the legislative intent. Proctor v. Kar-dassilaris, 115 Ohio St.3d 71, 873 N.E.2d 872,2007-Ohio-4838, at ¶ 12. In determining the legis-lative intent, we first look to the language in thestatute and the purpose to be accomplished. State exrel. Herman v. Klopfleisch (1995), 72 Ohio St.3d581, 584, 651 N.E.2d 995, citing State v. S.R.(1992), 63 Ohio St.3d 590, 594-595, 589 N.E.2d1319. If the meaning of a statute is clear on its face,then it must be applied as written. Lake Hosp.Sys., Inc. v. Ohio Ins. Guar. Assn. (1994), 69 OhioSt.3d 521, 524-525, 634 N.E.2d 611.

{11 19} Effective May 18, 2005, R.C. 5104.09provides in pertinent part that Inlo individual whohas been convicted of or pleaded guilty to a viola-tion of section * * * 2913.31 [forgery] * * shallown or operate a * * * type B family day-carehome, or certified type B family day-care home."(Emphasis added.) R.C. 5104.09(A)(1)(b). In ex-amining this language, we find a clearly expressedlegislative intent that the amended statute is to ap-ply retroactively. The legislative intent is evidencedby unequivocal statutory language that the prohibi-tion against owning or operating a type B familydaycare home applies to any individual who "hasbeen convicted of or pleaded guilty to " a violationof R.C. 2913.31 [forgery], or other disqualifyingoffense listed in R.C. 5104.09(A)(1)(b). (Emphasisadded.) The emphasized language clearly refers toconvictions or guilty pleas that occurred prior to thedate the statutory amendment became effective.Therefore, the amended statute applies retroactivelyto convictions or guilty pleas for disqualifying of-fenses, including forgery, that occurred prior to



May 18, 2005.

f lif 20) Our determination accords with decisions ofother courts in Ohio that have similarly concludedsuch language reflects a legislative intent that astatute is to have retroactive application. See Cook,supra, at 410, 700 N.E.2d 570 (finding a clearly ex-pressed legislative intent that sex offender registra-tion and verification requirements in R.C.2950.04[A] have retrospective application wherelanguage in the statute makes it applicable to an of-fender "who has been convicted of or pleadedguilty to" a sexually oriented offense); In re Hens-ley, 154 Ohio App.3d 210, 796 N.E.2d 973,2003-Ohio-4619, at 24 (determining that statutorylanguage "has been convicted of is language thatexpresses a legislative intent that a law is retroact-ive in application).

*6 II 211 Here, plaintiff is an individual "who hasbeen convicted of or pleaded guilty to" forgery pri-or to May 18, 2005, the effective date of R.C.5104.09's amendment. The administrative hearingofficer correctly found the statutory amendment ap-plies retroactively to plaintiff, in accordance withthe legislature's intent. In reviewing the agency de-cision, however, the common pleas court found theagency applied R.C. 5104.09's amendment"prospectively" in revoking plaintiffs type B day-care certification. Based upon its determination thatFCDJFS applied the challenged amendment pro-spectively in this case, the common pleas court con-cluded "there is [no] Constitutional question of ret-roactivity under Section 28, Article II, Ohio Consti-tution."

{II 22} Because R.C. 5104.09, as amended effectiveMay 18, 2005, applies retroactively, the trial courterred in determining it operates prospectively only.Notwithstanding the common pleas court's error,plaintiff is prejudiced only if FCDJFS' retroactiveapplication of the amended statute is not in accord-ance with law because it is unconstitutionally retro-active under Section 28, Article II of the Ohio Con-stitution. To resolve that question, this court mustproceed to the second step of the analysis and de-

termine whether R.C. 5104.09's May 18, 2005amendment is substantive or remedial. Cook; Smith,Bielat, supra.

23} A purely remedial statute does not violateSection 28, Article II of the Ohio Constitution, evenif applied retroactively. Cook, at 411, 700 N.E.2d570. "[R]emedial laws are those affecting only theremedy provided, and include laws that merely sub-stitute a new or more appropriate remedy for theenforcement of an existing right." Id. Laws that re-late to procedure, including courses of procedureand methods of review, are ordinarily remedial innature. Van Fossen, supra, at 107-108, 522 N.E.2d489. A statute is substantive, and therefore uncon-stitutionally retroactive under Section 28, Article IIof the Ohio Constitution, if it " 'impairs vestedrights, affects an accrued substantive right, or im-poses new or additional burdens, duties, obliga-tions, or liabilities as to a past transaction.' " Smith,supra, quoting Bielat, at 354, 721 N.E.2d 28; see,also, Van Fossen, supra, at 106, 522 N.E.2d 489.

24} Statutes enjoy a strong presumption of con-stitutionality, and a party seeking to have a statutedeclared unconstitutional must prove its unconstitu-tionality beyond a reasonable doubt. In re BraydenJames, 113 Ohio St.3d 420, 866 N.E.2d 467,2007-Ohio-2335, at ¶ 13; State v. Anderson (1991),57 Ohio St.3d 168, 171, 566 N.E.2d 1224. An ap-pellate court's review of the constitutionality of astatute is de novo. See Cook, supra.

251 Plaintiff contends the May 18, 2005 amend-ment to R.C. 5104.09 is unconstitutionally retroact-ive under Section 28, Article II of the Ohio Consti-tution because it impairs her vested substantiveright as a "veteran provider" to operate a type Bdaycare home. A "vested right" is a right that "socompletely and definitely belongs to a person that itcannot be impaired or taken away without the per-son's consent." Harden v. Ohio Atty. Gen., 101Ohio St.3d 137, 802 N.E.2d 1112, 2004-Ohio-382,at ¶ 9, and In re Hensley, supra, at 27, quotingBlack's Law Dictionary (7th Ed.1999) 1324. "Aright is not regarded as vested in the constitutional

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Page 8

sense unless it amounts to something more than amere expectation or interest based upon an anticip-ated continuance of existing law." In re Emery(1978), 59 Ohio App.2d 7, 11, 391 N.E.2d 746."[W]here no vested right has been created, 'a laterenactment will not burden or attach a new disabilityto a past transaction or consideration in the consti-tutional sense, unless the past transaction or consid-eration * * * created at least a reasonable expecta-tion of finality.' State ex rel. Matz v. Brown (1988),37 Ohio St.3d 279, 281 * * *." Cook, supra, at 412,700 N.E.2d 570. "Except with regard to constitu-tional protections against ex post facto laws * * *felons have no reasonable right to expect that theirconduct will never thereafter be made the subject oflegislation." Matz, at 281-282, 525 N.E.2d 805;Cook, at 412, 700 N.E.2d 570.

*7 [3] {ilf 26} Here, contrary to plaintiffs conten-tion, she acquired no "vested right" to own or oper-ate a type B family day-care home, either when shewas initially certified in 1995 or any time afterFCDJFS renewed her certification. Pursuant to R.C.119.01(B), a "type B family day-care" certificate isa "license." A "license" is "any license, permit, cer-tificate, commission or charter issued by anyagency." (Emphasis added.) R.C. 1I9.01(B). FCD-JFS is an "agency" for purposes of R.C. 119.01(B).See R.C. 119.01(A)(2). A "license" does not ordin-arily confer an absolute or vested right. See, e.g.,Shady Acres Nursing Home, Inc. v. Canary (1973),39 Ohio App.2d 47, 50, 316 N.E.2d 481(determining a license neither constitutes propertyin a constitutional sense nor confers an absoluteright, and a governmental authority can impose newburdens, create additional burdens, or revoke the li-cense); Raven-Hocking Coal Corp. v. Mamone(June 11, 1986), Vinton App. No. 419 (concludinga license does not confer a vested, permanent or ab-solute right, but only a personal privilege to be ex-ercised under existing restrictions and such restric-tions as may thereafter be reasonably imposed).

27} Here, plaintiffs right to be certified as atype B day-care provider was not absolute; it was

revocable. Specifically, from the date FCDJFS ini-tially certified plaintiff as a type B family day-careprovider until the agency revoked her type B certi-fication, plaintiffs certification was expressly sub-ject to FCDJFS's revocation, and the agency wasprohibited from renewing her type B certification ifshe did not comply with the child care laws inChapter 5104 and the rules adopted under thechapter. See R.C. 5104.11(C), the predecessor sec-tion to R.C. 5104.11(B). See, also, Ohio Adm.Code5101:2-14-06(B) and (C) (authorizing the agency torevoke the certificate of a type B provider who isnot in compliance with R.C. Chapter 5104 and OhioAdm.Code 5101:2-14); Ohio Adm.Code5101:2-14-11(B) (prohibiting the agency from cer-tifying or continuing to certify any individual as atype B home provider who has been convicted of orpleaded guilty to an offense listed in R.C. 5104.013or 5104.09).

[4] {II 28} Based on the foregoing, we concludethat certification to own and operate a type B day-care home is not a vested or substantive right in theconstitutional sense for the purposes of retroactivityanalysis of a statute. Because a substantive right isnot affected, retroactive application of R.C.5104,09, as amended effective May 18, 2005, doesnot offend Section 28, Article II of the Ohio Consti-tution. Although the common pleas court erro-neously found the challenged amendment operatesprospectively only, the error was harmless: plaintiffwas not prejudiced when FCDJFS applied R.C.5104.09 retroactively in this case, as its retroactiveapplication was in accordance with the law. Ac-cordingly, the first assignment of error is overruled.

II. Second Assignment of Error

*8 {1 29} Plaintiffs second assignment of errorcontends FCDJFS was precluded by the doctrinesof waiver, estoppel, and laches from revoking hertype B certificate in May 2006 after it renewed hercertification as a type B day-care provider for aone-year period commencing December 1, 2005,several months after R.C. 5104.09 was amended to



prohibit felony forgery offenders from providingtype B child care services.

[5] 30} The principles of waiver, laches and es-toppel ordinarily do not apply against the state orits agencies. See Gold Coast Realty, Inc. v. Cleve-land Bd. of Zoning Appeals (1971), 26 Ohio St.2d37, 39, 268 N.E.2d 280, and Campbell v. Campbell(1993), 87 Ohio App.3d 48, 50, 621 N.E.2d 853.Specifically, estoppel does not apply against a stateor its agencies in the exercise of a governmentalfunction. Hartmann v. Miamisburg, 110 Ohio St.3d194, 852 N.E.2d 716, 2006-Ohio-4251, at ¶ 25;Ohio State Bd. of Pharmacy v. Frantz (1990), 51Ohio St.3d 143, 555 N.E.2d 630; Griffith v. J.C.Penney Co., Inc. (1986), 24 Ohio St.3d 112, 113,493 N.E.2d 959. The operation of a job and familyservices department is a governmental function. SeeR.C. 2744.01(C)(2)(m). FCDJFS was performing agovernmental function when it revoked plaintiffscertification to own or operate a type B family day-care home. See R.C. 5104.11(B) (authorizingagency to revoke a "type B" certification before the12-month certification period expires if the agencydetermines revocation is necessary). See, also, R.C.5104.011(G)(2)(g) (authorizing the agency to adoptrules that include procedures for "issuing, renew-ing, denying, refusing to renew, or revoking certi-fication"). (Emphasis added.) Plaintiffs argumentthat FCDJFS was barred by estoppel from revokingher "type B" certification, a statutorily authorizedgovernmental function, is without merit.

[6] (i] 31} Similarly without merit are plaintiffs ar-guments regarding laches and waiver. Laches is notimputable to the government. Frantz, supra, at 146,555 N.E.2d 630; Lee v. Sturges (1889), 46 Ohio St.153, 176, 19 N.E. 560. Moreover, "Mlle public in-terest may not be waived." Campbell, supra, at 50,621 N.E.2d 853. In this case, approximately fivemonths elapsed from the time FCDJFS entered intoa contract with plaintiff in November 2005 to re-new her type B family daycare certificate until theagency proposed the revocation of her certificate.The lapse of time was not unreasonable, and

plaintiff did not show any material prejudice result-ing from the agency's decision to revoke her type Bcertificate five months after it lawfully could haverefused to renew it in the first place, due to her dis-qualifying forgery offenses. See discussion infra;R.C. 5104 .013(D)(2)(a) and 5104.09(A)(1)(b);R.C. 5104.11(B). See, also, R.C. 5104.31 and5104.32. Connin v. Bailey (1984), 15 Ohio St.3d34, 35-36, 472 N.E.2d 328, and Ohio Hosp. Assn. v.Ohio Bur. of Workers' Comp., Franklin App.06AP-471, 2007-Ohio-1499, at ¶ 6 (noting a partyasserting laches must show an adverse party's fail-ure to assert a right for an unreasonable and unex-plained length of time materially prejudiced theparty).

*9 {11 32} FCDJFS was not barred by estoppel,laches, or waiver from revoking plaintiffs type Bfamily day-care certification in May 2006 after ithad renewed her certification for a one-year periodeffective December 2005. Accordingly, the secondassignment of error is overruled.

III. Third Assignment of Error

[7] {iq 33} In her third assignment of error, plaintiffchallenges the validity of the administrative rulethat sets forth the standards by which past felonyoffenders who are disqualified pursuant to R.C.5104.09(A)(1)(b) may satisfy the statutory excep-tion set forth in R.C. 5104.09(D) and be allowed tooperate a type B family day-care home.

IT 34} Specifically, R.C. 5104.09 prohibits offend-ers who have been convicted of or pleaded guilty tocertain felony offenses, including forgery, fromowning or operating a type B family day-carehome, "[e]xcept as provided in rules adopted pursu-ant to division (D)" of the statute. R.C.5104.09(A)(1)(b). Division (D) authorizes the dir-ector of job and family services to adopt rules spe-cifying such exceptions "for persons who have beenconvicted of an offense listed in [the statute] butmeet rehabilitation standards set by the department." (Emphasis added.) R.C. 5104.09(D). The rules ad-



opted under R.C. 5104.09(D) are set forth in OhioAdm.Code 5101:2-14-11.

{1 35} Paragraph (N) of Ohio Adm.Code5101:2-14-11 allows an individual convicted of anotherwise disqualifying misdemeanor offense to becertified as a type B day-care provider if (1) the of-fense has been sealed or at least five years haveelapsed since the individual was discharged fromprison, probation or parole for the offense, (2) theoffense did not involve a vulnerable victim as spe-cified in the rule, and (3) the individual applyingfor type B certification will not jeopardize thehealth, safety, or welfare of children cared for in atype B day-care home as measured by 12 factors,including "the individual's efforts at rehabilitationand the results of those efforts." Ohio Adm.Code5101:2-14-11(N). The individual applying for typeB certification has the burden to prove that the con-ditions specified in paragraph (N) are met, with anydoubt to be "resolved in favor of protecting chil-dren." Ohio Adm.Code 5101:2-14-11(0).

36} Paragraph (Q) of the rule sets forth the cor-responding standards for felony offenders, permit-ting a past felony offender to be certified as a typeB family day-care provider only if the offender hasbeen granted an unconditional pardon for the felonyoffense or the conviction or guilty plea has been setaside pursuant to law. Ohio Adm.Code5101:2-14-11(Q). Plaintiff asserts paragraph (Q)'srule is invalid because it is unreasonable and con-flicts with R.C. 5104.09(D). According to plaintiff," R.C. 5104.09(D) requires the director to imple-ment rules that allow felons who have been meet[sic] rehabilitation standards to run Type B FamilyDay Care Centers." (Emphasis added.)

*10 {11 37} Administrative rules issued pursuant tostatutory authority are valid and enforceable unlessthey are unreasonable or in clear conflict with legis-lation governing the subject matter. Hoffman v.State Med. Bd., 113 Ohio St.3d 376, 865 N.E.2d1259, 2007-Ohio-2201, at 17; State ex rel.Celebreeze v. Natl. Lime & Stone Co. (1994), 68Ohio St.3d 377, 382, 627 N.E.2d 538, citing Young-

stown Sheet & Tube Co. v. Lindley (1988), 38 OhioSt.3d 232, 234, 527 N.E.2d 828. " 'When the poten-tial for conflict arises, the proper subject for de-termination is whether the rule contravenes an ex-press provision of the statute.' " Brindle v. StateMed. Bd. of Ohio, 168 Ohio App.3d 485, 860N.E.2d 1034, 2006-Ohio-4364, at ¶ 30, quotingWoodbridge Partners Group, Inc. v. Ohio LotteryComm. (1994), 99 Ohio App.3d 269, 273, 650N.E.2d 498.

IT 38} "When interpreting statutes, courts mustgive due deference to those interpretations by anagency that has accumulated substantial expertiseand to which the General Assembly has delegatedenforcement responsibility." Shell v. Ohio Veterin-ary Med. Licensing Bd., 105 Ohio St.3d 420, 827N.E.2d 766, 2005-Ohio-2423, at ¶ 34. See, alsoNorthwestern Ohio Bldg. & Constr. Trades Councilv. Conrad (2001), 92 Ohio St.3d 282, 289, 750N.E.2d 130 (recognizing that courts must accorddue deference to the interpretation formulated by anadministrative agency that has accumulated sub-stantial expertise and "to which the General As-sembly has delegated the responsibility of imple-menting the legislative command"). If a statuteprovides an administrative agency authority to per-form a specified act but does not provide the detailsby which the act should be performed, the agency isto perform the act in a reasonable manner basedupon a reasonable construction of the statutoryscheme. Id. at 287-288, 750 N.E.2d 130. See, also,Regions Hosp. v. Shalala (1998), 522 U.S. 448,449-450, 118 S.Ct. 909, 139 L.Fd.2d 895, andChevron U.S.A., Inc. v. Natural Resources DefenseCouncil, Inc. (1984), 467 U.S. 837, 843, 104 S.Ct.2778, 81 L.Ed.2d 694 (observing that if the statuteis silent or ambiguous as to the specific issue, thequestion for the court is whether the agency's an-swer is based on a permissible construction of thestatute). "An agency's reading that fills a gap ordefines a term in a reasonable way in light of theLegislature's design controls, even if it is not theanswer the court would have reached in the first in-stance." Regions Hosp., at 450, citing Chevron, at



843, fn. 11.

{1139} In R.C. Chapter 5104, the General Assemblyenacted child care laws granting the director of joband family services broad and comprehensive rule-making authority to promulgate rules that providefor, and have the overriding purpose of, safeguard-ing the health, safety and welfare of children re-ceiving child care, particularly children in type Bfamily day-care homes that receive public funds forproviding child care. See, generally, R.C. 5104.011,5104.11, 5104.013, and 5104.30 et seq. Toward thatend, the legislation grants the agency broad powersto promulgate procedures for issuing, renewing,denying and revoking certification for type B day-care providers, and it grants extensive oversight au-thority to the agency regarding type B family day-care homes and providers. See R.C. 5104.011,5104.11 and 5104.30 et seq. The legislation spe-cifically empowers the agency to adopt proceduresto deal with fraud or abuse that providers of pub-licly funded day-care commit. R.C. 5104.38(G).

*11 {f 40} Contrary to plaintiffs assertion, R.C.5104.09(D) does not mandate that the director ofjob and family services adopt rules that allow"felons" to be certified as type B day-care providersif they meet rehabilitation standards set by the de-partment. Rather, R.C. 5104.09(D) merely requiresthe director to adopt rules specifying exceptions forindividuals who have committed "an offense" listedin the statute; the statute lists misdemeanor offensesas well as felony offenses. Given R.C. 5104.09(D)'svague terms and the broad discretion the legislaturehas accorded to the department of job and familyservices to interpret and implement child care legis-lation generally and R.C. 5104.09 specifically, wecannot say the agency's rule is in clear conflict withthe General Assembly's intent in enacting R.C.5104.09.

41 } Additionally, in light of the overriding pur-pose of the child care legislation to safeguard thehealth, safety and welfare of children receivingchild care, and the governmental interest in pre-venting fraud in publicly funded day-care opera-

tions, we cannot say the administrative rule at issueis unreasonable, where plaintiff, a past felony of-fender convicted of forgery, is prevented from own-ing or operating a publicly funded day-care home.Plaintiffs third assignment of error accordingly isoverruled.

42} Having overruled each of plaintiffs assign-ments of error, we affirm the judgment of the com-mon pleas court that affirmed the order of FCDJFSrevoking plaintiffs certification to own or operate atype B family day-care home.

Judgment affirmed.

BROWN, J., concurs.TYACK, J., dissents.TYACK, J., dissenting.

{¶43} Because I disagree with the majority's resol-ution of the third assignment of error, I respectfullydissent.

44} 1 see a major problem involving R.C.5104.09(D) and the rules for implementing R.C.5104.09(D) as enacted through the efforts of theOhio Department of Job and Family Services.

{I 45} R.C. 5104.09(D) reads:

The director of job and family services shall ad-opt rules pursuant to Chapter 119. of the RevisedCode to implement this section, including rulesspecifying exceptions to the prohibition in divi-sion (A)(1) of this section for persons who havebeen convicted of an offense listed in that divi-sion but meet rehabilitation standards set by thedepartment.

46} R.C. 5104.09(D) clearly contemplates thatthe director of the Ohio Department of Job andFamily Services shall adopt rules which set forthrehabilitation standards for all the offenses listedwhich bar licensing. These offenses range from ag-gravated murder through rape to low-grade feloniessuch as theft, unauthorized use of a motor vehicle,possession of an unauthorized cable television



device and forgery. Someone who has committedone of the low-grade felonies at a remote time inthe past clearly could be fully rehabilitated and cap-able of appropriately handling the funds providedthrough the Ohio Department of Job and FamilyServices. The legislature recognized this and expec-ted the Ohio Department of Job and Family Ser-vices to adopt rules to implement the statute, not todisregard or thwart it. See Hoffman v. State MedicalBd. Of Ohio, 113 Ohio St.3d 376, 865 N.E.2d 1259,2007-Ohio-2201, at ¶ 17 ("[a]dministrative rulesare designed to accomplish the ends sought by thelegislation enacted by the General Assembly").

*12 {11 47} In response, Ohio Adm.Code5102:2-14-11(N) et seq. was adopted. OhioAdm.Code 5102:2-14-11(N) et seq. allows certific-ation only if (1) the disqualifying criminal offensewas a misdemeanor which had been sealed orwhich was more then five years old; or (2) the Gov-ernor of Ohio has granted an unconditional pardonas to the felony offense, no matter how many yearshave passed since the offense or how low grade thefelony might have been.

IT 48} Ohio Adm.Code 5102:2-14-11(N) et seq. isclearly unreasonable at best, and at worst, openlyconflicts with the clear legislative intent that per-sons convicted of felonies in the past should beconsidered eligible for daycare licenses. Thus, I canonly conclude that the provisions of the adminis-trative code enacted to implement R.C. 5104.09(D)actually thwart the clear legislative intent and lawsare invalid.

{11 49} Having concluded that the rules are unreas-onable and in conflict with the intent of the legis-lature, I would consider what remedy is available toappellant. In Hoffman, an anesthesiologist assistantfiled an action for declaratory and injunctive reliefagainst the State Medical Board of Ohio, assertingthat an administrative rule was in conflict with thestatute that lists the authorized activities of anes-thesiologist assistants. The Supreme Court of Ohioagreed and found the regulation invalid. Accord-ingly, the Supreme Court of Ohio reversed the

judgment of the court of appeals which had af-firmed summary judgment for the agency.

If 50} In another case involving allegations of in-valid rules, the Hoover Company challenged theBureau of Workers' Compensation's new formulafor calculating employers' assessments in a handi-cap participation plan. Hoover claimed that therules promulgated to invoke the new assessmentwere not formulated in accordance with R.C.Chapter 119, and were therefore invalid. Hooverbrought an action in mandamus seeking a writ tocompel the Bureau of Workers' Compensation toconsider its withdrawal from participation in theprogram or to calculate its assessment under thepre-rule rate standard. This court found the rules in-valid, but denied the writ on the grounds that the in-validity of the administrative rule conferred noright to retroactive consideration of Hoover's with-drawal from the handicap reimbursement program.The case was appealed to the Supreme Court ofOhio which held that Hoover was not entitled to theaffirmative relief it requested, denied the writ, anddeclined to pass on the validity of the administrat-ive rule. State ex rel. Hoover Co. v. Mihm (1996),76 Ohio St.3d 619, 669 N.E.2d 1130.

IT 51} The Supreme Court of Ohio went on to statethat "the invalidation of an administrative rule doesnot, as Hoover seems to argue, necessarily leave theregulated agency rudderless in carrying out its stat-utory duties. Rather, the agency must still executeauthority reasonably and in a manner consistentwith the objectives and standards that governingstatutes impose." Id. at 624, 669 N.E.2d 1130. See,also, Dressler Coal Corp. v. Call (1981), 4 OhioApp.3d 81, 85, 446 N.E.2d 785 (agency permissiblyenforced statutory standards with internally de-veloped evaluation criteria where its previously ad-opted rules had been enjoined and new rules hadnot yet been promulgated).

*13 {11 52} Since I view the rules and administrat-ive code enacted through the efforts of ODJFS asbeing in conflict with the clear intent of R.C.5104.09(D), I would remand the case to the Frank-



lin County Department of Job and Family Servicesto determine if Lorrie A. Cosby has been rehabilit-ated rather than automatically barring her from hav-ing a license because of illegal conduct which oc-curred 22 years ago. Because the majority of thepanel reaches a different conclusion, I respectfullydissent.

Ohio App. 10 Dist.,2007.Cosby v. Franklin Cty. Dept. of Job and FamilyServs.Not Reported in N.E.2d, 2007 WL 4340280 (OhioApp. 10 Dist.), 2007 -Ohio- 6641

END OF DOCUMENT


EXHIBIT D

George V. VoinovichGovernor

Harold T. DuryeeDirector

State Of Ohio

Department of Insurance2100 Stella Court Columbus, Ohio 43266-0566

BULLETIN 95-3

August 1, 1995

To: All Title Insurance Agents, Title Insurance Agencies,and Title Insurance Companies

From: Harold T. Duryee

Re: Title insurance agents, title insurance agencies, andtitle insurance companies providing goods or servicesto real estate agents, real estate brokerage offices,banks, thrifts, mortgage originators and other entities

Ohio Revised Code Section 3933.01 provides, in pertinent part:No corporation, association, or partnership engaged in thisstate in the guaranty, bonding, surety, or, insurance business,other than life insurance, nor any officer, agent, solicitor,employee, of representative thereof, shall pay, allow, or give,or offer to pay, allow, or give, directly or indirectly, asinducements to insurance, and no person shall knowingly receiveas an inducement to insurance, any rebate of premium payable onthe policy or any special favor or advantage in the dividends orother benefits to accrue thereon, or any paid employment orcontract for services of any kind, or any special advantage inthe date of the policy or date of its issue, or any valuableconsideration or inducement not plainly specified in the policyor contract of insurance or agreement of indemnity, or give,receive, sell, or purchase, or offer to give, receive, sell, orpurchase, as inducements to insurance or in connectiontherewith, any stock, bonds, or other obligations of aninsurance company or other corporation, association,partnership, or individual.

Ohio Revised Code Section 3953.26 prohibits a title insurancecompany or title insurance agent from paying or giving tocertain specified persons, either directly or indirectly, anycommission or any part of its fees or charges, or any otherconsideration or valuable thing, as an inducement for orcompensation for any title insurance business.

The Department of Insurance recognizes that the providing ofgoods and/or services of nominal value for advertising orpromotional purposes is a legitimate practice and may not be aninducement for or compensation for title insurance business.The purpose of this bulletin is to provide title agents and

BULRET95-3Accredited by the National Association of Insurance Commissioners (NAIC)

title insurance companies with guidelines which will assist themin complying with RC 3933.01 and 3953.26 when engaged inmarketing functions.

For the purposes of this bulletin:

1. "Person" includes any individual (natural person),corporation, association, agency, partnership, or anyother legal entity, or any employee(s) thereofdescribed in Section 3953.26 of the Ohio Revised Code.

2 "Indirectly" means by or through any employee,independent contractor, or affiliate of a titleinsurance company or title insurance agent regardlessof such employee's, independent contractor's, oraffiliate's status as an individual licensee.

3. "Affiliate" of a specific person means a person that,directly or indirectly, through one or moreintermediaries, controls, is controlled by or is undercommon control with, the person specified.

4. "Business office" means the physical space in which amajority of the day-to-day business activity of atitle agent or agency is conducted. "Business Office"does not include a temporary facility, pavilion, tent,hotel suite, lodge, loge, sky box, or other place ofentertainment.

5. "Valuable thing" includes, but is not limited to,monies, things, discounts, salaries, commissions,fees, duplicate payments of a charge, stock dividends,distributions of partnership profits, creditsrepresenting monies that may be paid at a future date,special bank deposits or accounts, banking terms,special loan or loan guarantee terms, services of alltypes at special or free rates, and sales or rentalsat special prices or rates.

6. "Fair market value" means the amount for which thething would sell on the open market by a willingseller to a willing buyer in an arms-lengthtransaction where the seller sells the goods orservices in question during the normal course of hisbusiness.

7. "Nominal value" means the total fair market value ofall goods and services provided for advertising, orpromotional purposes to any one person does not exceedfifty dollars ($50.00) per calendar year.

The providing of goods or services of nominal value foradvertising, promotional purposes is not prohibited. Suchpurposes may may include, but are not limited to, door prizes,tickets to sporting or entertainment events, golf, trips,receptions provided by a title company or agency, and seminars

BULLET95 -5

-5-

on title and real estate matters. Activities which involve thedefraying of expenses that would otherwise be incurred by adefined person are likewise not prohibited so long as theexpenses defrayed are of nominal value. However, goods,services or contributions received by other persons (i.e.employees of the person) may not be aggregated or combined tosupport any one event, occasion, or gathering (social orprofessional) of any such person (i.e. employer) as definedherein.

Title insurance companies and title insurance agents who givegoods or services of nominal value, for promotional oradvertising purposes are advised to keep records of suchtransactions which clearly indicate the person to whom the goodsare given or the services provided, the date, and the fairmarket value of the gift. The records should be available tothe Department upon request. Undocumented transactions ortransactions which exceed nominal value will be considered actsof inducement or compensation in violation of Revised CodeSections 3933.01 and 3953.26.

A valuable thing provided to a person in exchange for payment,whether such payment is in the form of goods, services, ormoney, will not be considered an inducement so long as thepayment bears a reasonable relationship to the fair market valueof the thing. To the extent that the fair market value of thething is in excess of the goods or services provided or themonies paid to the person, that excess will be considered aninducement.

Notwithstanding the above, the Department will consider thefollowing practices not subject to the provisions of O.R.C.3933.01 and 3953.26 or any record keeping requirements wheresuch activities are conducted during the normal course ofbusiness:

1. The providing of goods or services at no cost or atreduced cost to non-profit organizations.

2. The providing of a business meal, subject to all ofthe following:

(a) such meal is not a direct payment of aspecific title order(s);

(b) the purpose of such meal is to discussbusiness issues with the titleagent/representative;

(c) the meal is not combined with or associatedwith any promotional or advertising event;

(d) the number of persons present at such mealis reasonably related to the scope of thebusiness issues under discussion. For thispurpose, the title agent and up to six

6ULLET95-3

This bulletin supersedes Bulletin 92-2.

Ha old T. Dur ee

additional persons shall be considered arebuttable presumption of reasonableness;and

(e) such meal falls within the definitions setforth in `the Internal Revenue Code of 1986,as amended, or the regulations promulgatedthereunder, when deductible for income taxpurposes.

3. Food, beverage, entertainment, and parking costsdirectly related to hospitality events held at a titleagent's or title insurer's business office, subject toa maximum of two such events per office per calendaryear.

Any gifts, door prizes or other things of value givenat a hospitality event are subject to the nominalvalue guidelines and should be recorded.

4. The providing of any information which may be found inpublic records, regardless of the form in which suchinformation is compiled and provided. Titleexaminations and/or title searches are excluded fromthis exception; any promotion or advertising relatingto title searches or examinations must be recorded andis subject to the nominal value requirements.

Title insurance companies, agents and their representativeslicensed in Ohio are hereby cautioned that the Department willinvestigate complaints alleging violations of RC 3933.01 and3953.26. The substance as well the form of any particulartransaction will be scrutinized. Any market conduct investiga-tion and/or audit of an agent, agency, or company will be at theexpense of that entity should a violation be found. OhioAdministrative Code Rule 3901-1-40(B)(9) regulates the generalactivity of an insurance agent and provides that a license maybe revoked or not renewed after notice and hearing wherein it isshown that the agent has given or offered any form ofcompensation to an entity prohibited from receiving suchcompensation under the rules or statutes of the state of Ohio.Furthermore, RC 3933.03 provides that the Superintendent ofInsurance, upon the conviction of any agent for violation ofSection 3933.01, shall revoke the license of such agent and nolicense shall be granted such agent for a period of three yearsafter said revocation.

Superintendent

13tILLET95-3

EXHIBIT E

Ohio Department of Insurance2100 Stella Court, Columbus, OH 43215-1067(614) 644-2658 www.ohioinsurance.gov

Ted Strickland, GovernorMary Jo Hudson, Director

September 25, 2007

Robert B. Holman, Esq.Vice-President and Corporate CounselGeneral Title & Trust Company24262 Broadway AvenueCleveland, OH 44146

RE: Affiliated Business Arrangements (ABAs)

Dear Mr. Holman:

Thank you for your letter of August 28, 2007 concerning the regulation of ABAs in Ohio.I have reviewed your previous correspondence and notes of our January meeting aswell as the pertinent statutes and regulations in order to respond to your concerns.

The title insurance controlled business arrangements rule, section 3901-7-04 of theAdministrative Code, was duly promulgated the Joint Committee on Agency RuleReview and only became effective January 1 st of this year. In the little time it has beenin place it has proved to be a valuable tool for both the Licensing and the Enforcementdivisions by permitting the use of the RESPA guidelines to help determine whether anABA is a sham. It has also put into rule the Department's long-standing interpretationof "control" as it relates to ABAs. I believe the rule must be given more time in order toascertain its effectiveness and thus a meeting would not be fruitful at this time.

I also understand your position on the term "agent" in Revised Code section3953.21(B). However, the Department is bound by the statutory definition of "agent" asfound in section 3905.01 of the Revised Code and cannot interpret the term as yousuggest. A legislative change would be necessary to make the revisions that you aresuggesting.

I appreciate your time and attention on this matter. Please be assured that we arededicating additional staff to addressing issues regarding violations of Ohio lawassociated with title insurance sales. We look forward to continuing to work with you.

Best Wishes,

Mary Jo HudsonDirector

Accredited by the National Association of Insurance Commissioners (NAIC)Consumer Hotline: 1-800-686-1526 Fraud Hotline: 1-800-686-1527 OSHIIP Hotline: 1-800-686-1578

(Printed in house)

Documents

OAITA's MSJ filed Against ODI in Declaratory Judgment Action