In a 5-2 decision, the Supreme Court of Ohio in November invalidated Cleveland ordinances on the basis that they imposed regulations on local residential mortgage lenders which were more restrictive than statewide regulations enacted by the Ohio General Assembly.
Adopted in 1912, Article XVIII of the Ohio Constitution sets forth the powers exercised by municipal corporations within the state. It is widely referred to as the home rule amendment. Section 3 of Article XVIII reads as follows:
“Municipalities shall have authority to exercise all powers of local self-government and to adopt and enforce within their limits such local police, sanitary, and other similar regulations, as are not in conflict with general laws.”
This case involved three local ordinances adopted by the city of Cleveland in 2002 that prohibited various “predatory” practices by consumer lending institutions doing business in the city. Shortly after they were adopted, the Cleveland ordinances were challenged in a court action initiated by the American Financial Services Association (AFSA), a national trade organization representing consumer lending institutions.
AFSA asserted that the Cleveland ordinances were in conflict with legislation enacted earlier in 2002 by the Ohio General Assembly, 122-HB386 (Blasdel), which established regulatory guidelines applicable to all residential mortgage lenders doing business in Ohio. One provision in the bill, codified as R.C. 1.63, stated the legislatures intent to “preempt” the entire field of mortgage lending regulation for the state and included language barring local governments anywhere in Ohio from enacting local mortgage lending regulations.
The Cuyahoga County Court of Common Pleas granted summary judgment barring enforcement of the Cleveland ordinances. The city appealed and the 8th District Court of Appeals reversed the trial court’s judgment, holding that R.C. 1.63 was not a “general law” because it did not contain any regulatory provisions but operated solely to bar local regulations. The court of appeals also ruled that specific provisions of the Cleveland ordinance the trial court had identified as conflicting with state regulations were not in conflict because the city guidelines did not prohibit any practices that were explicitly permitted in the language of the state regulations.
The 8th District certified that its decision was in conflict with a 2004 ruling of the 2nd District in a very similar case, Dayton v. State, and the Supreme Court agreed to hear arguments in the case to resolve the conflict between appellate districts.
In this decision the Supreme Court reversed the 8th District, affirming the reasoning of the 2nd District in Dayton and holding that the Cleveland ordinances are unenforceable under the home rule amendment.
Writing for the majority, Justice Terrence O’Donnell cited a four-part test established in the Supreme Courts 2002 decision in Canton v. State for determining whether a legislative enactment qualifies as a “general law.”
Quoting from that decision, O’Donnell wrote that a general statute “must (1) be part of a statewide and comprehensive legislative enactment, (2) apply to all parts of the state alike and operate uniformly throughout the state, (3) set forth police, sanitary, or similar regulations, rather than purport only to grant or limit legislative power of a municipal corporation to set forth police, sanitary, or similar regulations, and (4) prescribe a rule of conduct upon citizens generally.”
Justice O’Donnell’s opinion was joined by Chief Justice Tom Moyer and Justices Evelyn Lundberg Stratton and Judith Ann Lanzinger.
Justice Maureen O’Connor concurred in judgment only, and entered a separate opinion indicating her belief that the Court should place more emphasis on the concept of preemption as opposed to the conflict analysis reflected in the majority opinion.
O’Connor noted that the federal courts have established clear guidelines for determining when a legislative enactment of Congress has preempted a state or local political unit from attempting to regulate in an area where federal regulation has been established. She suggested that clear judicial recognition by Ohio courts of the states authority to preempt local regulation in matters of statewide concern, which she found applicable in this case, would reduce litigation over alleged conflicts between state and local regulations and speed the resolution of conflicts that do arise.
Justices Alice Robie Resnick and Paul E. Pfeifer entered separate dissenting opinions. Both rejected the majority’s holding that a state statute prohibiting interest rates and loan charges above a certain percentage as “predatory” should be read as implicitly permitting lending institutions to impose any rate or charge lower than the prohibited state limit.
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