White v. Arkansas Capital Corp./Diamond State Ventures

Citations: 365 Ark. 200; 226 S.W.3d 825Docket: 05-337

Court: Supreme Court of Arkansas; February 2, 2006; Arkansas; State Supreme Court

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Laura Cullen, representing herself and similarly situated taxpayers, initiated a lawsuit in Pulaski County Chancery Court to contest appropriation bills enacted by the Arkansas General Assembly in 1997. The amended complaint, filed on August 26, 1999, named various defendants, including state officials and corporations involved in economic development. Cullen alleged that the Economic Development of Arkansas Fund Commission was established in violation of constitutional provisions prohibiting the drawing of money from the treasury without specific appropriation and mandating that appropriations, other than the general appropriation bill, be made via separate bills addressing single subjects.

Cullen argued that the General Assembly unlawfully delegated its appropriation authority through specific Arkansas statutes, leading to the appropriation of $15 million for economic development. The Arkansas Department of Finance and Administration (DF&A), under Richard Weiss, disbursed $300,000 to Arkansas Capital Corporation from the state treasury, which Cullen claimed constituted an illegal grant of taxpayer funds to a private entity. She contended that this arrangement violated Article 12, Section 7 of the Arkansas Constitution, which prohibits financial interests in private corporations by the state.

Cullen further asserted that Act 413 of 1997 allowed discretionary disbursements of public funds without proper legal authorization, violating Article 16, Section 3 concerning the use of public money. The lawsuit seeks the return of the appropriated funds to the state treasury, arguing that the actions of the General Assembly represented an unconstitutional exaction from Arkansas taxpayers.

Jefferson County Minority Business Owners Association received $250,000 from the Economic Development of Arkansas Fund, which is alleged to violate the Arkansas Constitution by bypassing requirements for specific appropriations as outlined in Article 5, Sections 29 and 30. This payment is claimed to represent an unconstitutional delegation of the Arkansas General Assembly's authority, resulting in illegal exactions from taxpayers. Additionally, the Economic Development Fund Commission, alongside DF&A Director Richard Weiss and the State Treasurer, disbursed $500,000 to Fort Smith for infrastructure improvements without specific appropriation, which is also claimed to violate Amendment 14 of the Arkansas Constitution as it constitutes a local act. Further, millions have been allocated for a Civic/Convention Center in Fort Smith, again without specific appropriation and in violation of Amendment 14. The appellant challenges the constitutionality of Acts 413 and 672 of 1997, claiming all appropriations from these acts are illegal. The case, initially filed in 1999, faced significant inaction until a trial was scheduled for May 20, 2004, but was ultimately dismissed on December 3, 2004, due to a lack of injunctive relief requests since the case’s inception.

The court found that Arkansas Capital Corporation, Jefferson County Minority Business Owners Association, and Fort Smith acted in good faith and legally when applying for grants from the Economic Development of Arkansas Fund Commission during 1998 and 1999. Since the grant funds had been fully disbursed and spent, the court deemed the claims against the recipients moot and dismissed them with prejudice. The court also held that the State had no interest in Arkansas Capital Corporation, and due to the Appellant's failure to substantiate claims regarding local legislation violations, those claims were withdrawn. Claims against Richard Weiss in his official capacity and the Economic Development of Arkansas Fund Commission were also deemed moot. Furthermore, Weiss was dismissed from the claims against him individually, as there was no evidence of wrongdoing beyond his official role.

The Appellant filed a timely appeal, contesting the circuit court's rulings on six points of error, primarily regarding the validity of the presumption of good faith for summary judgment in illegal-exaction cases and the treatment of affidavits in such contexts. Notably, the court determined that even if the appropriations were unconstitutional, there was no available remedy, rendering the Appellant's claims moot. Article 16, Section 13 of the Arkansas Constitution allows citizens to pursue illegal-exaction claims, defined as unauthorized or unlawful exactions of funds, which can involve either misapplication of public funds or illegal taxation.

Appellant contends that the appropriations in question were unconstitutional, constituting misappropriations of public funds. In the first amended complaint filed on August 26, 1999, he sought injunctive relief and restitution from the recipients of these appropriations. However, the circuit court found the claims moot due to a lack of remedy, as a moot case is one where a judgment would have no practical legal effect on an existing legal controversy (citing Ark. Gas Consumers, Inc. v. Ark. Pub. Serv. Comm’n, 354 Ark. 37, 118 S.W.3d 109 (2003)). 

For his first point of error, Appellant argues the circuit court erred by considering the good faith of Appellees, asserting that illegal-exaction claims do not permit good faith defenses. He references Munson v. Abbott, 269 Ark. 441, 602 S.W.2d 649 (1980), where despite a good faith claim, the court upheld a trial court's order for repayment of improperly documented expenses. Generally, courts have allowed reimbursement despite claims of good faith (citing Massongill v. County of Scott, 337 Ark. 281, 991 S.W.2d 105 (1999) and others), but in these cases, the misappropriation stemmed from misinterpretation of constitutional laws, not challenges to the laws' constitutionality itself.

The issue of whether good faith can exonerate liability when a statute is later deemed unconstitutional remains unresolved in Arkansas. Appellees reference White v. Williams, 192 Ark. 41, 89 S.W.2d 927 (1936), where the court refused to require a sheriff to repay funds received under an unconstitutional statute, emphasizing his good faith reliance on the statute as directed by the state comptroller. A similar good-faith exception is recognized in criminal contexts, allowing police to act in reasonable reliance on statutes subsequently declared unconstitutional (citing Feland v. State, 355 Ark. 573, 142 S.W.3d 631 (2004)). Other jurisdictions also support the principle that penalties should not be imposed on parties for actions taken under laws valid at the time, which were later invalidated (citing cases from Arizona and Delaware).

The Arizona Supreme Court clarified that historically, a declaration of unconstitutionality had complete retroactive effect, rendering unconstitutional laws as if they never existed. However, this principle has diminished over time, and Arizona law has evolved to allow citizens to rely on legislative enactments until they are repealed or declared unconstitutional. The court emphasized the injustice of penalizing individuals for complying with laws that were later found unconstitutional, reinforcing the presumption of constitutionality for statutes.

The court's reasoning extends to Arkansas, where it asserted that state officials and citizens should not be punished for acting in good faith on presumed valid legislative acts. In this case, restitution was deemed an improper remedy since the Arkansas Economic Development Fund Commission was abolished, and all appropriated funds had been spent during the litigation period. Consequently, neither injunctive relief nor restitution was available, rendering the appellant's claims moot, and the circuit court's ruling was affirmed.

Additionally, it was noted that due to Amendment 80 to the Arkansas Constitution, effective July 1, 2001, the state's chancery and circuit courts have merged and are now designated as circuit courts. Throughout the case proceedings, changes in parties were documented, including the addition of Robert White as a plaintiff and Laura Cullen's discharge from her duties, with the circuit court also acknowledging the mootness of claims against the Commission and its members.