|Legal Opinion: |
Text of Document: Memorandum
TO: MTAS Consultant
FROM: Dennis Huffer, Legal Consultant
RE: Recovery of Alleged Illegal Payments
DATE: April 7, 2003
You have referred to me a question from an Alderman your City asking what the City or Alderman acting on behalf of the City can do to recover illegal payments made by the City to the Mayor. The Mayor has been paid an amount, in addition to the salary prescribed by law, in lieu of health insurance premiums. For purposes of this memo, I will assume the payments were illegal. Sid Hemsley opined late last year that the payments were in violation of the City's charter.
Generally, municipalities may recover illegally paid salaries and fees. According to McQuillin:
[U]sually, compensation illegally paid to an officer or employee may be recovered by the public, irrespective of his or her good or bad intention. Thus money paid by a municipal corporation to one of its officers in excess of that officer's lawful salary or fees may be recovered by the corporation in an action against the officer for money had and received to its use, although the payments were made on the order of officials properly charged with such duty with a full knowledge of the facts and without fraud. The defense of voluntary payment is not available in such case, for knowledge on the part of the officer of the authority of the officials who made the illegal payments must be presumed. Such illegal acts are ultra vires, outside the agency of the officials, and are not binding on their principals, the people. Therefore, such unwarranted payment of excessive compensation or fees cannot be ratified. 4 McQuillin, Mun. Corp. ' 12.195 (3rd Ed.).
In an ideal world, if the Mayor refused to return the overpayments, the City's governing body would bring suit to recover the amount overpaid. This would be similar to an action for debt. This was done in Bedford County Board of Education v. Harris , 763 S.W.2d 750 (Tenn. Ct. App. 1988), although the Board of Education in that case failed to prove the illegal overpayment to the satisfaction of the appellate court. If the City's governing body refuses to bring the suit, that leaves it up to the Alderman or others and raises the question of standing to bring suit.
Standing is a judicially created doctrine that is supposed to foster judicial efficiency and ensure that parties to a lawsuit have an actual interest in the outcome of the suit. A suit will be denied even though it has merit if the person bringing it does not have standing. Citizens, for example, generally do not have standing to contest issues involving the exercise of municipal powers unless they can show an injury that is different from those suffered by the public at large. Badgett v. Rogers , 436 S.W.2d 292 at 294 (Tenn. 1968). Under the rule in Ray v. Trapp , 609 S.W.2d 508 (Tenn. 1980), it is unlikely the Alderman would have standing solely because of her status as an Alderman to bring a lawsuit to recover the payments. This case held that minority members of a public body have no standing to appeal a decree where the public body is the real party in interest. Although the Ray case involved an appeal rather than the initial bringing of the suit, I cannot think of reasons there would be different rules for the initiation of a suit.
This, however, would not preclude the Alderman (or others) from bringing the lawsuit as a taxpayer. Taxpayers, like citizens, generally do not have standing simply because of their status as taxpayers. The taxpayer generally must show some special injury not suffered by taxpayers as a whole. Patton v. City of Chattanooga , 65 S.W. 414 (Tenn. 1901). Tennessee courts make an exception to this rule, however, when the burden of taxation is increased or unlawful expenditures are made by illegal actions of a governing body. The leading case is Reams v. Board of Mayor and Aldermen of McMinnville , 291 S.W. 1067 (Tenn. 1927). In this case a taxpayer brought an action challenging the location of a school outside the corporate limits. Although the taxpayer ultimately lost this suit because municipalities have authority to own property outside the corporate limits, the Supreme Court handed down this rule for taxpayer standing:
[T]he right of the complainant to maintain the suit depends upon whether the board of mayor and aldermen ... transcended their lawful power or committed an unlawful or prohibited act that would increase taxation or result in an additional expenditure of municipal funds ... . 291 S.W. at 1068.
The rule in the Reams v. McMinnville case was followed in Badgett v. Rogers , noted above. The Badgett case is similar to your situation. The Mayor of Knoxville was provided an expense account that the taxpayer questioned as an illegal expenditure. The Court held that the taxpayer had standing even though ultimately finding the expense account was not illegal.
Normally, a taxpayer must demand that the governing body rectify the illegal expenditure before the taxpayer will be allowed standing to bring a lawsuit. State v. Brown , 21 S.W.2d 721 (Tenn. 1929). But demand is unnecessary when the status and relation of the involved officials would make a demand futile. Burns v. City of Nashville, 221 S.W. 828 (Tenn. 1919); Malone v. Peay, 7 S.W.2d 40 (Tenn. 1927). The Court in the Bladgett case found demand unnecessary:
In the instant case, no demand upon the city was alleged; but, in this case, its absence does not undermine the standing of the complainant to sue. The Mayor and Finance Director patently have interests contrary to this action. Demand upon them would have been a vain formality. 436 S.W. 2d at 295.
This is probably also the situation in your City, but it would not hurt to have a demand made anyway and documented as a precaution if one has not already been made.
In summary, any City taxpayer should have standing to contest an illegal expenditure by the Board of Mayor and Aldermen. Standing should be granted based upon the alleged illegal expenditure even though the taxpayer can show no special injury and even though no demand has been made that the Board and Mayor rectify the situation.
This leads to the question under what authority the suit would be brought. The best option is probably a declaratory judgment.
Declaratory judgments are authorized by Tennessee Code Annotated, ' 29-14-101, et seq . Using the declaratory judgment route assumes that the taxpayer bringing the suit does not question the continued authority of the Mayor to serve. If the intent were to question the Mayor's continued authority to serve, the suit should be brought as a quo warranto action, which will be discussed later.
The petition in the declaratory judgment action would seek a declaration that the expenditure was illegal and ask that the revenues be returned to the City. T.C.A. ' 29-14-102(a) provides:
Courts of record within their respective jurisdictions have the power to declare rights, status, and other legal relations whether or not further relief is or could be claimed.
T.C.A. ' 29-14-103 provides:
Any person interested ... or whose rights, status, or other legal relations are affected by any statute, municipal ordinance, contract, or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise and obtain a declaration of rights, status or other legal relations thereunder.
T.C.A. ' 29-14-110 allows the court to grant relief in addition to the declaration of illegality, which in this case would be an order that the Mayor return the funds to the City.
Taxpayer lawsuits have been entertained by the courts under the Declaratory Judgments Act to question the existence of a city, Smith v. City of Lawrenceburg , 71 S.W.2d 214 (Tenn. 1934) and to question the transfer of spending authority from one body to another, Crockett County v. Walters , 95 S.W.2d 305 (Tenn. 1939). Lawsuits have been brought by other interested parties to determine municipal authority and to question the validity of municipal ordinances. See, for example, City of Rockwood v. Chamberlain Memorial Hospital , 427 S.W.2d 829 (Tenn. 1968); City of Kingsport v. Lay, 459 S.W.2d 786 ( Tenn. App. 1970); and State ex rel. Earhart v. City of Bristol , 970 S.W.2d 948 (Tenn. 1998). The state Supreme Court held in Fallin v. Knox County Board of Commissioners , 656 S.W.2d 338 (Tenn. 1983), that declaratory judgment is the proper action to contest the validity of local ordinances and resolutions or other acts of a legislative nature. Since expenditures of a municipality must be approved legislatively, a declaratory judgment suit would more than likely be proper.
If the object of the lawsuit is not only to get the money returned to the City but to remove the Mayor from office, it should be brought as a quo warranto action under T.C.A. ' 29-35-101, et seq. T.C.A. ' 29-35-101 provides in pertinent part:
An action lies in the name of the state against the person or corporation offending, in the following cases:
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(2) Whenever any public officer has done, or suffered to be done, any act that works a forfeiture of that officer's office;
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It is possible that the receipt of these funds by the Mayor would be found to violate T.C.A. ' 39- 16-402. This statute makes official misconduct a Class E felony and provides as follows:
(a) A public servant commits an offense who, with intent to obtain a benefit or to harm another, intentionally or knowingly:
* * *
(5) Receives any benefit not otherwise authorized by law.
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(d) An offense under this section is a Class E felony.
* * *
Section 2.06 of your City's charter (Chapter 403, Private Acts of 1951, as amended) provides:
A vacancy shall exist if the mayor or an alderman ... is convicted of ... a felony ... .
The Mayor, of course, has not been convicted of a felony, but the case of Thompson v. Crump, 183 S.W. 505 (Tenn. 1915), holds that a quo warranto proceeding is separate from a criminal prosecution, is civil in nature, and need not be delayed by lack of criminal conviction:
In these cases of removals by courts the courts may remove one for an offense which is punishable criminally, even where such person has not been convicted on an indictment for such offense, and constitutional provisions that one shall not be answerable for a criminal offense except on indictment do not apply. 183 S.W. at 510.
In State v. Thompson , 246 S.W.2d 59 (Tenn. 1952), a quo warranto action was brought against a Paris City Commissioner who was unlawfully appointed City Manager. The Court held that the appointment was void and that the City could recover from Thompson the entire salary he was paid as City Manager:
It results that the petitioner is entitled to a judgment against Thompson for the use and benefit of the City of Paris in an amount equal to the total amount paid him out of the public funds of the City for salary as City Manager. 395 S.W. 2d at 63.
Therefore if the object of the suit were to remove the Mayor as well as recover the money, quo warranto would be the action to attempt. Quo warranto proceedings must normally be brought by the district attorney, so the taxpayer initiating the suit should consult with the DA if this is the chosen vehicle. You should note that quo warranto would not work against a former Mayor, since there is no office for this person to be removed from. This means that declaratory judgment is probably the best choice.
T.C.A. ' 8-47-101, et seq. , provides for the ouster of public officials for certain kinds of misconduct. Since I assume from the question that the purpose of a suit would be to recover the money rather than simply depose the Mayor, this is the end of the ouster discussion.
The case of State ex rel. Bonner v. Andrews , 175 S.W. 563 (Tenn. 1915), held that a taxpayer bringing a suit to recover funds illegally spent or not collected had a lien to cover expenses and attorney fees on funds collected as a result of the suit. The theory is that in a situation where the city officials failed to act there would be no money returned to the public treasury without the efforts of the taxpayer. The Court quotes Dillon on Municipal Corporations:
There is no doubt that the corporation may in its own name bring suits, in proper cases, to be relieved against illegal, unauthorized, or fraudulent acts on the part of its officers. Since, however, experience has shown how liable these corporations are to be betrayed by those who have the temporary management of their concerns, it would never do, we think, for the courts to hold that relief against illegal or wrongful acts can be had only by an authorized suit brought by and in the name of the corporation. 175 S.W. at 568 and 569, quoting from Dillon on Municipal Corporations, ' 1586 (5th Ed.); italics in original.
I hope this is helpful. Let me know if you need anything else.