KLC Files Amicus Curiae Brief in Important Kentucky Supreme Court Case Involving User Fees & the Standard for Imposing Personal Liability upon City Officials

KLC Files Amicus Curiae Brief in Important Kentucky Supreme Court Case Involving User Fees & the Standard for Imposing Personal Liability upon City Officials

KLC recently filed an amicus curiae (“friend of the court”) brief in a case before the Kentucky Supreme Court, which examines the distinction of a user fee versus a tax, the scope of a local government’s authority to implement user fees and the standard for imposing personal liability upon city officials.

In 2013, Suzette Sewell-Scheuermann, a taxpayer, filed a civil action in Jefferson Circuit Court against the mayor and city councilmembers for the city of Audubon Park. The complaint alleged that the city officials approved annual budgets and ordinances setting a sanitation fee tax for the purpose of paying for sanitation services, but that some funds were diverted from the sanitation tax revenue to the general fund to be spent on unrelated items in violation of Section 180 of the Kentucky Constitution, KRS 92.330 and KRS 92.340. The city officials moved to dismiss the complaint arguing that that there had been no legal damages because the diverted funds were used to pay legal obligations of the city. The Circuit Court agreed and dismissed the complaint. The plaintiff appealed the dismissal and the Court of Appeals reversed the lower court’s decision. The Court of Appeals not only found that the sanitation assessment was a tax, but that even though the city suffered no damages, since the applicable statutes were violated (KRS 92.330 and KRS 92.34), the city council members were liable to the city to pay the amount of funds that were diverted for other valid governmental purposes, approximately $900,000.

In its brief, KLC emphasized that the sanitation assessment in question is not a tax, but rather a user fee. Thus the statutes that the appellant, and subsequently the Court of Appeals, relied upon, KRS 92.330 and KRS 92.34, were not applicable to the facts of the case.  KLC argued that the fee was a proper user fee defined under KRS 91A.510 as, “a fee or charge imposed by a local government on the user of a public service for the use of any particular service not also available from a nongovernmental provider.” Furthermore, the sanitation assessment was paid by citizens who enjoy the benefits of public sanitation services and the fee was reasonably related to the benefit received.

KLC also argued that it is impossible for the exact amount of a service or tax liability to be predetermined. There are always unforeseeable circumstances such as delinquencies, miscalculations, etc. that will produce either a surplus or a deficit to the liability for a service provided by a city. KLC argued that where a valid levy or assessment is imposed, after the goal has been accomplished, if a surplus remains then necessity and efficiency require that these funds can be used for other valid city purposes.

The final argument made by KLC was that the facts of the case did not support the imposition of personal liability upon the city officials. The statute relied upon by the appellant and the Court of Appeals, KRS 92.340, imposes joint and several liability upon city officials for the diversion of tax revenue. However, since the fee in question was not a tax, but rather a user fee, the statute was not applicable. The statutes governing user fees do not impose personal liability and contain no penalty provisions. 

KLC also pointed out that Kentucky courts have only imposed personal liability upon elected officials when a city has sustained an actual loss. In this appeal, the funds that were diverted were used for valid governmental expenses, not at a loss to the city.  Additionally, Kentucky case law requires that if personal liability is imposed upon a city official, he or she may off-set the liability by any amount that was paid for valid obligations. If that well-established principle is applied in this case, the officials would have no outstanding debt to be paid because all funds were used for valid city purposes. Any recovery would be circuitous and completely unnecessary. In fact, as KLC highlighted in its brief, the litigation expenditures of the case and appeal have caused more harm to the city and taxpayers than any alleged wrongdoing.

We will continue to provide updates on this case as it progresses through the Supreme Court. Read KLC’s amicus brief. 

For more information on this case, contact Morgain Sprague, Managing Legal Services Counsel, at 800.876.4552.