Summary
holding that where charity did not protest the retention of all bingo proceeds by game's operators, attorney general's authority to sue to enforce charitable trusts gave him authority to maintain suit for damages against operators
Summary of this case from Botelho v. GriffinOpinion
No. 77-1361
Decided November 15, 1978.
Attorney General — Enforcement of charitable trust — R.C. 109.24 — Power properly exercised, when.
Where a person or organization represents to the public that the net proceeds generated from bingo games are to be used for charitable purposes, the attorney general, pursuant to his statutory and common-law powers set forth in R.C. 109.24, may bring suit to ensure that funds so obtained are employed for charitable purposes.
APPEAL from the Court of Appeals for Montgomery County.
This cause involves an action brought by the attorney general to enforce a charitable trust pursuant to his authority as set forth in R.C. 109.24.
In his original complaint filed in the Court of Common Pleas of Montgomery County on December 18, 1975, the attorney general contended that the defendants — the Concerned Citizens for Sickle Cell Anemia, Inc., aka the Concerned Citizens for Sickle Cell, Inc., Horace Willingham, Willie A. Tyson, Theodore P. Anderson, Samuel Hearn, Jeanette Prear, George Blackburn, and unnamed agents, employees and officers of the above named persons (appellees herein) — by conducting a bingo operation for ostensibly charitable purposes, were subject to the provisions of R.C. Chapters 109 and 1716. In particular, the attorney general alleged that the net proceeds generated from the bingo operation should be held as part of a charitable trust, as defined in R.C. 109.23, requiring the defendants, as part of their fiduciary duties, to employ the net proceeds solely for the benefit of the appropriately designated charities.
The attorney general alleged further in his complaint that the defendants were under a fiduciary duty to comply with the various registration requirements pursuant to R.C. 109.26, 1716.02, 1716.05, and 1716.07, to file annually a surety bond with the attorney general as required under R.C. 1716.05, and to file an annual financial report on forms prescribed by the attorney general pursuant to R.C. 1716.04.
In his prayer for relief, the attorney general asked, inter alia, that the court enjoin the defendants from conducting future bingo games unless the defendants properly register and file the necessary reports with the attorney general, allocate and disburse a minimum of one-third of the gross receipts derived from the bingo operations to charitable purposes, and retain an independent public accountant to maintain the financial records of the bingo games. He further requested that the court "order such other and further relief as justice and equity may require. * * *"
On December 29, 1975, the trial court enjoined the defendants from operating future bingo games, as requested by the attorney general. On February 9, 1976, that court issued a second order requiring that the defendants cease all solicitation of funds through bingo operations until resolution of the present cause.
The evidence adduced at trial reflects that on February 1, 1975, Samuel Hearn entered into an agreement with Concerned Citizens for Sickle Cell, Inc., an organization which at that time was not duly incorporated under the laws of Ohio, whereby Hearn agreed to conduct bingo games for the benefit of the organization. The organization's purpose as stated in the agreement was "to aid and assist the residents of the City of Dayton and primarily residents of the Inner West, Southwest, and Northwest target areas in educating, testing and treating for Sickle Cell Anemia * * *." Jeanette Prear, one of the named defendants in this action, was president of the organization.
The bingo games commenced in the beginning of February of 1975, and continued up until the time the attorney general filed his original complaint. Samuel Hearn was in complete control of the games. He was responsible for the employment of personnel and also was part owner of the building in which the games were to be held. His wife, Emmie Mae Hearn, handled the control room where the monies were collected. Horace Willingham, Willie A. Tyson, Theodore Anderson, and George Blackburn, all employees of Mr. Hearn, worked at the games.
A total of 62 advertisements were placed in the Dayton Daily News during the period of February 4, 1975, through December 26, 1975. Of these ads, three stated that the bingo games were sponsored by the "Concerned Citizens for Sickle Cell Anemia, Inc.," fifty-five ads stated that the bingo games were sponsored by the "Concerned Citizens for Sickle Cell, Inc.," and four ads disclosed no sponsor.
To obtain this advertising in the newspaper, George Blackburn, as manager of the bingo games and representative of the Concerned Citizens for Sickle Cell Anemia, Inc., filled out a release form dated May 28, 1975. The form stated, in part, "We represent to Dayton Newspapers, Inc. that the game of chance referred to in such advertising is designed to produce income solely for charitable purposes and the entire net income after deduction of necessary expenses will be applied to such purposes, in accordance with Section 2915.01(E) of the Ohio Revised Code."
Articles of incorporation for a separate organization known as the Concerned Citizens for Sickle Cell Anemia, Inc., were filed with the Secretary of State pursuant to R.C. 1702.01 on July 28, 1975. The named trustees of the corporation were Horace Willingham, Willie A. Tyson, and Theodore P. Anderson. The stated purpose of the organization was "[t]o associate all interested persons for charitable purposes in connection with Sickle Cell Anemia."
Despite the above representations that the bingo games would be operated for charitable purposes, no monies were ever distributed for charitable purposes prior to the filing of the attorney general's original complaint. In the summer of 1975, Jeanette Prear, as representative of the Concerned Citizens for Sickle Cell, Inc., was invited to attend an awards presentation to be held during one of the bingo games at which time she was to receive a donation of $1,000 on behalf of the organization from the bingo operators. However, while receiving the check, she was told by Samuel Hearn not to cash it, and she never did.
After reviewing the documentary and testamentary evidence concerning the number of nights per week the bingo games were held, the seating capacity of the bingo hall, the number of people attending the games, and the revenues and expenses generated from the operation during the period from January 1, 1975, through December 31, 1975, the trial court rejected the net loss figure of $74,609 as reported by the Concerned Citizens for Sickle Cell Anemia, Inc., on its 1975 income statement. The court determined that the bingo operation acquired net proceeds of $311,151, none of which was distributed to charitable organizations.
The trial court, finding that an enforceable charitable trust was created under R.C. 109.23, ordered that the net proceeds acquired through the bingo operations be held in trust exclusively for charitable purposes.
In determining responsibility for payment of the net proceeds to charity, the court found that Samuel and Emmie Mae Hearn knowingly caused false statements to be entered into the corporate books and thus were personally liable for payment of the proceeds of the trust to charity. The court further imposed liability on the Concerned Citizens for Sickle Cell Anemia, Inc.
On appeal, the Court of Appeals reversed the judgment, holding, in effect, that Section 6 of Article XV of the Ohio Constitution and R.C. 3763.01 prevented the attorney general from enforcing a charitable trust where the net proceeds were acquired from illegal bingo operations.
The cause is now before this court upon the allowance of a motion to certify the record.
Mr. William J. Brown, attorney general, Mr. John W. Clark, III, and Mr. Bruce J. Rakay, for appellant.
Mr. James H. McGee, Messrs. Lucas, Prendergast, Albright, Gibson, Brown Newman, Mr. Robert E. Albright and Mr. Richard C. Brahm, for appellees.
The central issue before this court is the proper disposition of monies obtained through illegal bingo operations conducted ostensibly for charitable purposes.
Effective November 5, 1975, the voters of Ohio approved a constitutional amendment permitting the General Assembly to authorize and regulate the operation of bingo games conducted by charitable organizations for charitable purposes. Section 6, Article XV of the Ohio Constitution. Pursuant to the above amendment, the General Assembly enacted R.C. 2915.07, effective May 26, 1976, authorizing charitable organizations which obtained a license from the attorney general to conduct bingo games.
Prior to November 5, 1975, bingo games conducted for any purpose were illegal (Section 6, Article XV, Constitution of Ohio, 1851). Prior to January 1, 1974, the operator and participants of the games were subject to possible criminal penalties. However, effective January 1, 1974, bingo games conducted for charitable purposes, although remaining illegal under the Ohio Constitution, were no longer criminal acts. R.C. 2915.02(A)(2); see Committee Comment to R.C. 2915.04. Both before and after January 1, 1974, R.C. 3763.02 and 3763.08 provided a remedy for certain persons to sue for and recover monies expended at the illegal games.
In the instant cause, the trial court held that a charitable trust was created under R.C. 109.23 on February 1, 1975, when Samuel Hearn agreed in writing to donate a certain portion of the proceeds from future bingo operations to the Concerned Citizens for Sickle Cell, Inc.
R.C. 109.23(A) provides as follows:
"`Charitable trust' means any fiduciary relationship with respect to property arising under the law of this state or of another jurisdiction as a result of a manifestation of intention to create it, and subjecting the person by whom the property is held to fiduciary duties to deal with property within this state for any charitable, religious or educational purpose."
This definition is similar to the one found in 2 Restatement of Trusts 2d 210, Section 348, and, as observed in 1 Scott on Trusts (2d Ed.) 37, Section 2.3, it is the generally accepted definition for an express trust.
Whether the General Assembly, in adopting a definition for a charitable trust similar to that found in the Restatement, intended to include under the definition of "charitable trust" only an express trust, need not be decided in this cause, since this court finds it unnecessary to determine whether a charitable trust under R.C. 109.23 was in fact created.
Under R.C. 109.24 it is provided:
"The attorney general shall institute and prosecute a proper action to enforce the performance of any charitable trust, and to restrain the abuse thereof whenever he deems such action advisable * * *."
Effective November 19, 1975, the General Assembly inserted additional language into the provisions of R.C. 109.24 which states:
"The powers of the Attorney General under sections 109.23 to 109.33 of the Revised Code shall be in addition to and not in limitation of his powers held at common law."
One of the recognized powers held by the attorney general at common law was "to inquire into any abuses of charitable donations." 2 Blackstone's Commentaries on the Laws of England (1872), 334. Clearly, the attorney general's traditional power to protect public donations to charity goes beyond the mere enforcement of express trusts where the formal elements of such a trust — manifestation of intent to create a trust, the existence of trust property, and a fiduciary relationship — are essential to its creation. See, generally, 1 Restatement of Trusts 2d, at pages 6-12, Section 2; and 2 Restatement of Trusts 2d 210, Section 348. The attorney general, in seeking to protect the public interest, may also bring suit to impose a constructive trust on funds collected for charitable purposes but subsequently diverted to other purposes. See Restatement of Restitution 640, 688, at Sections 160 and 169 (Comment c). A constructive trust, although not a formal trust at all, serves as a means to prevent the unjust enrichment of those who would abuse their voluntary roles as public solicitors for charity (see R.C. Chapter 1716). For this court to hold that the attorney general can only enforce express charitable trusts would greatly hamper his ability to carry out his statutory and common law duties.
In the instant cause, the February 1, 1975, written agreement between Hearn and the Concerned Citizens for Sickle Cell, Inc., the newspaper release and advertisements, and the awards presentation, demonstrate that the appellees were representing to the public that monies expended at the bingo games would be donated to charity. Thus, irrespective of whether the Hearns intended to create a trust, they owed a duty to the public to hold monies received from the bingo operation for charitable purposes. The attorney general properly exercised his power to insure that the net proceeds from the games be spent properly, and, therefore, it was proper for the trial court to order that these funds be used exclusively for charitable purposes.
The statutory remedies for the recovery of monies expended at the bingo games as made available under R.C. 3763.02 and 3763.08 do not preclude this court from imposing a constructive trust on the net proceeds generated from the games. As noted in 1 Restatement of Trusts 2d 160, Section 60, Comment b, monies obtained illegally may yet be the subject of a trust. The fact that the attorney general, pursuant to his own duties, is seeking to impress a trust on these funds has no relation to the provisions set forth in R.C. 3763.02 and 3763.08.
Appellees also assert that the evidence is insufficient to support the trial court's findings concerning the net proceeds generated from the bingo operations, and concerning Samuel and Emmie Mae Hearn's knowledge of the falsity of the entries made in the corporate books.
The evidence reflects that a figure of $37,660 was reported as rental expense on the income statement, although no rent was ever paid. A salary expense of $145,795 was reported, although copies of the employer's W-2 forms for 1975 reflect a total salary expense of $79,425.07. There was testimony of record concerning the nightly receipts and payouts, and numbers in attendance, indicating that the total gross sales figure reflected on appellee's income statement was notably less than what should have been reported.
With respect to Samuel and Emmie Mae Hearn's knowledge of false entries made in the corporate books, there is testimony indicating that Samuel Hearn was the chief operator of the bingo games and that Mrs. Hearn was in charge of the control room where the money and records were kept.
A review of the record convinces this court that there was sufficient evidence to support the trial court's findings, and this court will not, by weighing the evidence, make its own determination with respect to these issues. See State, ex rel. Puehler, v. Bd. of Edn. (1938), 134 Ohio St. 280, 283.
Accordingly, the judgment of the Court of Appeals is reversed.
Judgment reversed.
LEACH, C.J., HERBERT, CELEBREZZE, W. BROWN, HOLMES and STEPHENSON, JJ., concur.
HOLMES, J., of the Tenth Appellate District, sitting for P. BROWN, J.
STEPHENSON, J., of the Fourth Appellate District, sitting for LOCHER, J.