AAC RESEARCH CORNER

However, it does not create a monetary fund from which fees might be awarded. In Millsap, the Court affirmed awarding attorney fees when the plaintiffs derivative action preserved a large sum of corporate assets, which benefited the corporation. Millsap v. Lane, 288 Ark. 439, 442, 706 S.W.2d 378, 379-80. In Lake View, the Court determined that a substantial benefit had been conferred because it involved statewide public interest because it concerned millions of dollars in taxpayer money and eliminated disparities in funding and opportunities for students, benefiting not only the poorer school districts but the state as a whole. Lake View School District. No. 25 of Phillips County v. Huckabee, 340 Ark. 481, 495 10 S.W.3d 892, 900-01 (2000). The Court emphasized, “this is a unique case with a unique set of circumstances” and that we did not sanction attorneys’ fees “in all public-interest litigation or endorse a new exception to the American Rule.” Id. at 497, 10 S.W.3d at 902. The Arkansas Supreme Court was deliberate and expressly allowed only attorney fees because it found it to be a very special and particularized set of circumstances. HB1530, if passed, would have created an entirely different level of interplay and inconsistency between two provisions of the Arkansas Constitution. First, the Constitution expressly grants the state sovereign immunity. Ark. Const. Art. 5, § 20. Sovereign immunity is a broad, jurisdictional immunity from suit, meaning the State cannot be made a defendant in court. In essence, a case will be barred if a judgment in favor of the plaintiff would control state action or coerce the state. Bd. of Trs. of Univ. of Ark. v. Andrews, 2018 Ark. 12, 10 535 S.W.3d 616, 622. Second, the Arkansas Constitution provides that “any citizen of any county, city, or town may institute suit, on behalf of himself and all others interest, to protect the inhabitants thereof against the enforcement of any illegal exactions whatsoever.” Ark. Const. Art. 16, § 13.

To be clear, the Arkansas Constitution provides state taxpayers the right to file illegal exaction lawsuits against the county, city, or town. Traditionally, however, at their core these suits have been to adjudicate whether an alleged activity is legal and if proper to enjoin the alleged activity. In actuality, the doctrine of sovereign immunity is in direct conflict with expanding to Arkansas Code § 25-35-902 as sought under HB1530 to allow for an attorney’s fees against the “state, county, city, or other governmental entity” where there is no escrow of funds from which to pay a taxpayer refund. The amendment as well poses a separation of powers issue. Neither the General Assembly nor the courts have the power to coerce the state or override a constitutional provision. As a result, the General Assembly and Arkansas Supreme Court would be barred from passing such legislation because it is inconsistent with the framers’ intentions. This is due to the long-standing precedent established in Fairbanks v. Sheffield, 226 Ark. 703, 292 S.W.2d 82 (1956).

In Fairbanks, the Court held that a statute allowing suit against the state park system was “an unconstitutional attempt on the part of the legislature to consent to a suit against the state.” Id. at 84. Further, article 5, section 20 is “mandatory and cannot be waived by the General Assembly.” This is not to say that taxpayers would simply be without remedy in these types of cases. Suits that subject the State of Arkansas to monetary liability have a proper jurisdiction redress against the state: file a claim with the Arkansas Claims Commission.

In 2022, the Arkansas Supreme Court decided the case of Gibson v. Buonauito, 2022 Ark. 206. 655 S.W.3d 59. In a previous appeal, the Court held that tax funds levied from Amendment 91 of the Arkansas Constitution could only be used for constructing or improving four-lane highways. The use of Amendment 91 funds for two projects involving six-lane interstate highways constituted an illegal exaction. Buonauito v. Gibson, 2020 Ark. 352, 609 S.W.3d at 386.

The case was remanded to the circuit court, and it entered an amended order declaring an illegal exaction and enjoined the use of Amendment 91 funds on the projects. The court determined that $121 million of the fund was misspent. Later, the circuit court entered an order awarding $18,160,000 in attorneys’ fees to the taxpayers’ attorneys. Additionally, the attorneys were awarded $6,896.70 in costs.

On appeal, the state argued that the circuit court erred in awarding attorneys’ fees. Specifically, that (1) sovereign immunity bars the award of attorneys’ fees; (2) no statutory authority exists for awarding the fees; and (3) appellees are not entitled to attorneys’ fees because the American Rule exceptions do not apply. The plurality held that this case was distinguishable from Lake View because there was no substantial benefit in this case because no state funds were recouped. It reasoned that Ark. Code Ann. § 26-35-902 was inapplicable because the present action was brought against the state and the statute does not permit attorneys’ fees. The statute provides:

(a) It is the public policy of this state that circuit courts may, in meritorious litigation brought under Arkansas Constitution, Article 16, § 13, in which the circuit court orders any county, city, or town to refund or return to taxpayers moneys illegally exacted by the county, city, or town, apportion a reasonable part of the recovery of the class members to attorneys of record and order the return or refund of the balance to the members of the class represented.

In his concurrence, Arkansas Supreme Court Associate Justice Shawn Womack stated, “[n]othing in our state law currently authorizes attorney fees to be paid in an action such as the one before us. Therefore, I call upon the members of the General Assembly to visit this situation to determine their policy-making role. I believe attorneys in future actions of this nature should be authorized to receive compensation. It is the legislature that possesses the power to do so, not the courts.”

He called upon the General Assembly to “consider whether a law to allow recovery of these fees against the State, as exists for claims against counties, cities and towns is appropriate.”

However, this call to action would violate sovereign immunity. Justice Womack stated, “… this court has recognized that the legislature does not have the authority to waive sovereign immunity and authorize suits against the state generally…” He further noted that the legislature could have included orders against the state or any of its agencies in Ark Code § 26-35-902. In interpreting the statute, he said:

“…while the language of the statute tracks with the constitution’s reference to “county, city, or town,” the phrase in article 16, section 13 modifies “[a]ny citizen.” Thus, it qualifies who may file suit and does not limit which public entities can be sued. Ark. Const. art. 16, § 13. Thus, it qualifies who may file suit; it does not limit which public entities can be sued.”

HB1530 sought to allow attorney fees in misallocation of funds cases. This would be in direct conflict with Ark. Const. Art. 5, § 20. HB1530 would have a circuit court in Arkansas rendering a monetary judgment against the State of Arkansas, it’s coffers and the State Treasurer to disgorge funds not held in escrow by the Court. Most judges, legal scholars, legislators and citizens should see HB1530 as a direct violation of mandate of Article 5, Section 20: “The State of Arkansas shall never be made a defendant in any of her courts.” Additionally, HB1530 seeks to have the attorney’s fees awarded as cost on top of the sums refunded to taxpayers or recovered. The General Assembly simply does not have the power to waive sovereign immunity because it is a Constitutional protection.

Finally, AAC Consultant Eddie A. Jones has over 42 years of experience in county government. He was treasurer for Randolph County for 26 years, and he was executive director of AAC. He adds that most misallocation of funds are detected when audits are performed on county governments by the Arkansas Legislative Audit Department. Corrections are made at the time of the audit exit. Moreover, he says, “County government is a required public entity providing mandated and crucial services such as public safety, the incarceration of prisoners, and many other services that cannot be compromised by possible financial ruin because of the opening of the floodgates to lawsuits and awards of attorney’s fees. The purpose of governmental immunity is clear. It is safety with solvency. I think counties are entitled to both.”