Shipp Ex Rel. Fayette County v. Rodes

293 S.W. 543, 219 Ky. 349, 1927 Ky. LEXIS 348

• Court: Court of Appeals of Kentucky (pre-1976)
• Decided: February 22, 1927
• Status: Published

Opinions

Opinion of thf. Court by

Judge Logan

— Reversing.

This case and tbe companion case of Shipp v. Bradley have been before this court on one question or- -another a number of times. (Shipp v. Rodes, 196 Ky. 523; Shipp v. Bradley, 210 Ky. 51; Shipp v. Stoll, 200 Ky. 646; Shipp v. Doak, 211 Ky. 737.)

The facts out of which this controversy grows in their various aspects are stated in the opinions referred to and will not be again stated in this opinion.

When this case was sent back to the circuit court, and before a hearing in that court the fiscal court of Payette county entered into a compromise agreement with Rodes and also with Bradley by the terms of which agreement the claims made against the said Rodes. and Bradley were settled and compromised. These compromise agreements were filed m the proceedings in the circuit court and relied upon by Rodes and Bradley as a complete settlement and compromise of all matters and things between each of them and Payette county. The question arose as to whether, under the circumstances and facts in this case, the fiscal court of Payette county had the authority under the law to enter into the compromise agreements. It was insisted by the appellant, Paul E. Shipp, who brought the taxpayer’s suits that the fiscal court of Payette county had no such authority, and that the suits which he had instituted and prosecuted could not be compromised or settled by the fiscal court, as he alone was representing Payette county in this litigation, and that he had the authority' to manage and control the course of the litigation until it came to an end.

This court, in the case of Shipp v. Rodes, 196 Ky. 523, has held that Shipp had authority to maintain the-taxpayer’s suits, but we do not understand the opinion ‘to hold that the fiscal court was forever ousted of its authority to exercise the corporate powers' of Payette county and we do not understand that opinion to hold that the power of the fiscal court so well defined, as it relates to matters such as are involved herein in the case of Commonwealth of Kentucky v. Tilton, 111 Ky. 341, and Williams v. Stallard, 185 Ky. 10, was modified or restricted.

The controlling question before the court at this time is whether the fiscal court, actingi in good faith, had authority to make the compromise agreements which are relied upon as a complete accord and satisfaction of the claims in the tapayer’s suits. If the fiscal court was. ousted.of its jurisdiction so far as these matters are concerned by the institution of the taxpayer’s suits, and if these suits were subject only to the control of the taxpayer without the direction or guidance or interference of the fiscal court, then the compromise agreements were made without authority and are wholly void. There is no middle ground. We must either hold that the corporate powers of the several counties of this state which are exercised by the fiscal courts may be completely destroyed by a taxpayer who sees proper to institute a suit which, in his judgment, ought to be instituted and which, in his judgment, the fiscal court has improperly refused to institute, or we must hold that the corporate powers of the several counties of the state cannot be so destroyed.

If it be assumed that the fiscal court of a county is sometimes derelict in its duty that only proves that it is made up of fallible human beings, and if, by reason of such dereliction, some officious taxpayer desires to assume the duty of exercising the corporate powers of a county he may walk in and do so without let or hindrance, if we are to hold that the fiscal court may destroy its right to act concerning a particular matter because it did not act at the time some taxpayer thought it should act. If the fiscal court may -be thus ousted of its jurisdiction the corporate powers of a county may be easily destroyed, and when the corporate powers of a county are destroyed then we can have no responsible head to the fiscal affairs of the county and chaos would be the result. However, these questions are determinable from the law as we find it written in our statutes and the decisions, of our courts construing the statutes. So far as this court is concerned this question is one of first impressions. It has not heretofore been considered ¡by the court. It is necessary, therefore, to consider the statutes conferring power upon the fiscal courts, and as the statutes are not numerous the task is. not difficult.

The fiscal court is a constitutional court provided for by section 144 of the Constitution of our state. It ■consists of the judge of the county court and the justice of the peace unless steps have been adopted for the court to consist of three commissioners elected by the voters from the county at large and the judge of the county court. The duties and powers of the fiscal court are not defined by the Constitution. Therefore it was left to the legislature to prescribe its powers and duties.

Section 1834, Kentucky Statutes, is as follows:

“Unless otherwise provided by law, the corporate powers of the several counties of this state shall be exercised by the fiscal courts thereof respectively. ’ ’

Section 1840, Kentucky Statutes, is as follows:

“The fiscal court shall have jurisdiction to appropriate county funds authorized by law to (be appropriated; to erect and keep in repair necessary public buildings, secure a ¡sufficient jail and ia comfortable and convenient place for holding court at the .county seat; to erect and keep in repair ¡bridges and other structures and superintend the same; to regulate and control the fiscal affairs -and property of the county; to make provision for the maintenance-of the poor and provide -a poorhouse and farm and provide for the care, treatment and maintenance of the -sick and poor, and provide a hospital for said purpose, or contract with any hospital in the county to do so, and provide for the good condition of the highways in the county, and to appropriate county funds to make provision to secure immigration into the county, and to advertise the resources of the county, and to appropriate' comity funds for the benefit of colleges -and for infirmaries for the sick located in the county, and to -execute all -of its orders consistent with the law and within its jurisdiction,- and shall have jurisdiction of all -such other matters relating to the levying of taxes as is by any ¡special act now conferred on the county court of levy and claims.”

The first of the above quoted sections provides that the corporate powers of the several counties of the state shall be exercised by the fiscal court. The second section quoted defines generally the powers and jurisdiction of the fiscal court. Among these powers is that “to regulate and control the fiscal affairs and property of the county. ’ ’

In the case of Commonwealth v. Tilton, supra, the court, after quoting section 1834, Ky. Stats., and referring to section 1840, said-:

“We are of opinion that by these two sections of the statute all rights of action for and on behalf of the county is in the fiscal court; and that until that court refuses- to institute -suit no one may do -so.”

It would be -a peculiar situation if all right of action for -and on behalf of the county is in the fiscal court and yet the fiscal court has not the power to enter into a settlement in good faith of a matter involving the fiscal affairs of the county. As we understand this record, the fiscal court of Fayette county never at any time refused to institute a suit on the claims set up in the taxpayer’s suits, but this court held that the circumstances were such that a refusal on the part of the fiscal court to institute the suit was not necessary before the taxpayer might proceed, but the fact remains nevertheless that the fiscal court did not refuse to institute a suit on these claims, and that cannot be charged against the court in a consideration of the question as to whether it has been ousted of its legal functions by reason of its conduct in connection with this litigation.

In the case of Henderson County v. Henderson Bridge Co., 116 Ky. 164, the court had occasion to discuss the question as to whether a judgment against the sheriff enjoining him from the collection of taxes was. a bar to a suit by the county to recover the same taxes. Judge Hobson, writing for the court, said:

“Thus in Lyman v. Faris, 53 Iowa 498, 5 N. W. 621, the validity of a tax having been determined in an action against the board of supervisors, who were the managing agents of the county, it was held that an action to enjoin the collection of the tax could not be maintained by a taxpayer, as the supervisors represented all the taxpayers of the county in the defense which they had made to the former action on the same ground.”

If the board of supervisors acting as managing agents for a county had entered into litigation wherein the validity of a tax was determined their action was no stronger than that of a fiscal court compromising a claim against a county, and if a taxpayer could not attack a judgment obtained in a suit wherein the board of supervisors were parties we believe it affords reason why a taxpayer may not attack a compromise settlement made by the fiscal court in good faith. In the same opinion Judge Hobson, writing for the court, said:

“When the rights of the county are to be determined, it should be sued, so that it may control the defense, pay the expenses, and take such steps as its interest may require.”

If the county should control the defense and take such steps as its interest may require then it must do these things through the fiscal court under the provisions of section 1834, Ky. Stats., as only the fiscal court may exercise the corporate powers of the county, and if it applies to the defense of a suit it must apply with equal force to the prosecution of a suit by the county as. plaintiff. '"When the rights of a county are to be determined in a suit brought in the interest of the county it must be brought in such a way that the county may control the prosecution and take such .steps as its interests may require.

In the case of Williams v. Stallard, et al., 185 Ky. 10, this court said:

“’This court has uniformly held in a long list of cases that sections 1834, 1839, 1840, and perhaps others, of the Kentucky Statutes, made and constituted the fiscal court the agency of the county to look after the arranging for and the collecting of the finances of the county as well as their disbursement for county purposes within the limitations prescribed by law, and those actions with others relating to the powers and duties of the county judges and the county attorney, have been construed to lodge with such officers and agencies the primary right to institute and conduct all suits and proceedings looking to the preservation of the fiscal affairs of the county. ’ ’

Even if it has been held that the fiscal court of Fayette county was derelict in the discharge of its duties in the institution of suits on these claims, we are unwilling to say that the fiscal court lost its power to function again and to assume its rightful place in directing the financial affairs of the county, as long as it acted in good faith in matters pertaining to the litigation. We think it is clear that the fiscal court, acting in good faith, had the power and authority to enter into the compromise agreement settling the claims growing out of this litigation, and having this view of the law, the circuit court correctly held that the compromise might be relied upon as a bar to. further proceedings in this matter on the part of the taxpayer.

We are supported in this, conclusion by the decision in the case of Oakman v. City of Eveleth, 163 Minn. 100, 203 N. W. 514. The court in that case said:

“A petition, subscribed by the necessary number of electors in the city of Eveleth, proposed an ordinance asking that the same be passed or submitted forthwith to a vote of the people. The proposed ordinance provided for a compromise of certain claims of thei city against nine former city officials and their sureties. Such claims are now involved in three actions, brought by a taxpayer, for the benefit of the city, and are now pending in this court, and involve about $135,000.00. The ordinance is to authorize a full satisfaction and discharge upon payment of $15,000.00. The city council did not pass the ordinance. It did not submit it to a vote of the people, although 25 days elapsed.

“An alternative writ of mandamus was issued by the district court, upon relation of a taxpayer, requiring the council to proceed to call a special election for a vote of the people upon such ordinance, or show cause why they had not done so. Defendants demurred to the petition and writ on the ground that the facts therein stated did not constitute a cause of action. The trial court overruled the demurrer, but certified that the questions presented were important and doubtful. Defendants have appealed.

“L Mandamus will not be granted where it would not avail anything. Dunnell’s Digest, section 5759. It is said that this proposed ordinance is invalid, and that therefore the writ should not issue; and it is claimed that, if the ordinance is passed, it will bind the city only, and that by its terms its availability is optional to the defendants. We will assume that the petition is made in good faith and that the petitioners have sufficient reason to know that the settlement would be made if the city 'would join therein At least, we cannot assume, on demurrer that the initiative movement is seeldng a result that would be futile.

“2. The actions are being prosecuted by a taxpayer. The city failed to act. The appellant now questions the right of the city to step in and settle the matter involved in the taxpayer’s lawsuits. The determination in such actions binds other taxpayers the same as it binds the plaintiff therein. Driscoll, et al. v. Board of Co. Com. (Minn.), 201 N. W. 945, filed January 23, 1925, and cases cited. No other taxpayer could interfere by commencing another suit in the same cause of action. Note 49 L. R. A. (N. S.) 108. Neither can the city come in and successfully ask to have the action dismissed. State, ex rel. Morrison v. City of Muskogee, 70 Okl. 19, 172 P. 796. We think, however, that, where a city in good faith desires to compromise and settle pending litigation, and may do so, the paramount public welfare demands that 'such settlement may not be hindered or thwarted by a single taxpayer, even though he be courageous in the cause of public justice. The responsibility for action or nonaction in such matter must rest upon the public officials. If their action is not taken in good faith, the plaintiff will have a remedy.”

It is argued by counsel for appellant that the subject matter of these suits, cannot be compromised, but we understand the rule to be well established that pending litigation to recover on claims that are unliquidated and uncertain in amount may be compromised by the state or any of its political subdivisions at any time before final judgment. Commonwealth v. Southern Pacific Co., 134 Ky. 421, 120 S. W. 313; Oakman v. City of Eveleth, 163 Minn. 100, 203 N W. 514; McQuillin on Municipal Corps., Vol. 5, section 2479; note 19 L. R. A. (N. S.) 320; Farnham v. City of Lincoln, 75 Neb. 502, 106 N. W. 666; Agnew v. Brall, 124 Ill. 312, 16 N. E. 230; Orleans County v. Bowen, 4 Lans. (N. Y.) 24; Mills County v. R. R., 47 Iowa 66, 107 U. S. 557, 2 S. Ct. 654, 27 L. ed. 578; Clough v. Varrette, 79 N. H. 356, 109 A. 78; Smith v. Wilkinsburg, 172 Pa. 121, 22 A. 371; City of San Antonio v. St. Ry. Co., 22 Tex. Civ. App. 148, 54 S. W. 281; Washburn County v. Thompson, 99 Wis. 585, 75 N. W. 309; People v. Board of Supervisors, 27 Cal. 655; New Orleans v. R. R. Co., 109 U. S. 221; 3 S. Ct. 144, 27 L. ed. 916; Hine v. Stephens, 33 Conn. 497, 89 Am. Dec. 217; Logansport v. Dykeman, 116 Ind. 15, 17 N. E. 587; McKennie v. Charlottsville, 110 Va. 70, 65 S. E. 503, 18 Ann. Cas. 1027; State v. Davis, 11 S. D. 111, 75 N. W. 897, 74 Am. St. Rep. 780; Petersburg v. Mappin, 14 Ill. 193, 56 Am. Dec. 501; Gering v. School Dist., 76 Neb. 219, 107 N. W. 250; R. R. Co. v. Anthony, 73 Mo. 431; Multnomah County v. Dekum, 51 Or. 83, 93 p. 821, 16 Ann. Cas. 933; Paret v. Bayonne, 39 N. J. Law, 559; Springfield v. Walker, 42 Ohio St. 543; Labette v. Elliott, 27 Kan. 606; Wells v. Putnam, 169 Mass. 226, 47 N. E. 1005; Buffalo v. Bettinger, 76 N. Y. 393; Dillon on Municipal Corps., section 821; Abbott on Municipal Corps., vol 2, section 1160; Tiedman on Municipal Corps., section 142; Beach on Public Corps., vol. 1, section 638; 28 Cyc. 1756; Town of Russell v. Whitt, 161 Ky. 187, 170 S. W. 609 ; Creekmore v. Central Construction Co., 157 Ky. 336, 163 S. W. 194; Phillips’ Admr. v. Phillips, 81 Ky. 147.

This brings us to the final question in the case and which is the only one left remaining. Appellant filed a reply to the answers setting up the compromise made between the fiscal court and Bradley and Bodes. The paragraph of the reply necessary for consideration attempts to set up lack of good faith on the part of the fiscal court in making the compromise agreements. If the fiscal court did not act in good faith and did not exercise a reasonable judgment in entering into the compromise agreements believing’ that it was acting for the best interest of the county, and if it could be shown that the fiscal court was guilty of fraud and that it did not act in good faith in the exercise of a reasonable judgment doing what it believed was for the best interest of the county, the compromise agreements would not be valid and might be attacked by the taxpayer. The taxpayer has the right to show, if he can, that the fiscal court did not act in good faith and that it acted in fraud on the rights of the county when it'made the compromise agreements, and the question now before us is whether the allegations in his reply constitute any basis -for his conclusion that the compromise agreements were fraudulently entered into for the purpose of shielding Bodes and Bradley and assisting them to defraud the county out of what justly belonged to it. We say if these things can be shown it follows as a matter of course that the compromise agreements were not entered into in good faith and would have no binding effect and the court should disregard them. We shall not set out in haec verba the paragraph of appellant’s reply in which he attacks these compromise agreements. We will consider ¡some of the language used. The language is from the reply in the Bradley case. He alleges that the compromise agreements were and are a scheme and a deliberate agreement made and entered into by said parties to impede the due 'and regular administration ¡of justice in this case as directed in the opinions of the Court of Appeals. Such allegation is altogether too general and at the most is only a con elusion of the pleader, as is his allegation that it was a scheme to oust the courts of their jurisdiction of the case and'to shield Rodes and Bradley and their surety from having to answer and disclose the issues in controversy and account therefor. There are many conclusions in the pleading similar to those which we have mentioned, and in fact the pleading is very largely made up, so it seems to us, of allegations tending to show that the compromise-agreements were entered into for the purpose of obstructing the course, of justice. There is an allegation, however, that the public inspector’s report of the record of' Fayette county shows that the defendant, Rodes, and the-surety company are indebted to- the pl-aintiif -and to Fayette county and her taxpayers in a large sum above what was paid in the compromise settlement, and there is a similar allegation relating to Bradley in his case. It may be that this allegation, although scant, is sufficient to entitle the plaintiff to prove-, if he can, that there was an undisputed claim due Fayette county greater than $10,-000.00 in each case, which sum was accepted in settlement, of the litigation. If it could be shown that Bradley and Rodes 'were owing the county more than the amount which they paid and that the difference between what they were owing -and what they paid as admittedly due-by'them, and that the fiscal court at the time it made the compromise knew that it was accepting a less sum than was admittedly due, it would tend to show a lack of good faith on the part of the fiscal court. It is also alleged that prior to the attempted compromise an offer was. made to pay a larger sum than that which was paid to-the fiscal court. There is no allegation that this offer was-brought to the attention of the fiscal court, and yet it is. evidence, if true, that Rodes and Bradley admitted that they were owing the county more than they paid it, and that might tend to show lack of good faith on the part, of the fiscal court, although it could have- little weight unless it should be shown that the fiscal court, at the time-it made the settlement, knew that Rodes and Bradley were willing to pay more than was accepted by the court. It is further alleged that the compromise -agreements, were made for the purpose of aiding Bradley and Rodes- and their sureties to conceal and evade their liability toFayette county and her taxpayers and to defeat the due administration of the law. It can hardly be said that this allegation is merely a conclusion of the pleader. If Bradley and Rodes and the fiscal court sought by the settlement to conceal and evade the true liability of Rodes and Bradley to Fayette county, and if this fact ■could be established by competent evidence, it would tend to show that the fiscal court did not act in good faith. The allegations in the reply in the Bodes case are more feeble than in the Bradley case, but in part they are substantially the same.

A majority of the court has reached the conclusion that the demurrer to the paragraph of the substituted replies in which the compromise agreements are attacked on the grounds of bad faith should have been overruled, but the court is not unmindful of the meagerness of the allegations in this paragraph of the replies. Nearly all of this paragraph of the replies is made up of conclusions which cannot be considered as constituting any defense to the compromise agreements, but, as indicated above, we have reached the conclusion that there is enough in the reply to entitle plaintiff to introduce proof to show, if he can, that the fiscal court did not act in good faith in the particulars referred to above where we have held that appellant scantily pleads enough to justify him in introducing proof. No other questions in this record are determined.

The judgment of the lower court is reversed, with directions for proceedings consistent with this opinion. Whole court sitting. Chief Justice Clay dissents from so much of the opinion as holds the replies attacking the settlement sufficient. Judge McCandless dissents from so much of the opinion as holds that the fiscal court had the authority to compromise the claims.