Oregon Supreme Court Provides Guidance on Taxpayer Lawsuits

Anyone who has spent any time in local government knows that almost every time a local government makes a decision of any significance, someone will threaten to sue.  Most often, the person claims that because he or she is a voter, he or she has a right to sue the local government.  Alternatively, the person will claim that because he or she is a taxpayer, he or she has a right to sue.  But not so fast.  As the plaintiff in the recent case of Morgan v. Sisters School District #6 discovered - it’s not that simple. Background

Under Oregon law, in order to file a lawsuit a person must be able to show that his or her rights will be directly and significantly harmed by the challenged action.  This concept is known as “standing” As explained by the Oregon courts, “‘standing” is a legal term that identifies whether a party to a legal proceeding possesses a status or qualification necessary for the assertion, enforcement, or adjudication of legal rights or duties.

The Decision

In Morgan, the Sisters School District issued $2.1 million in certificates of participation under ORS 271.390 to fund improvements to classrooms, buy new furniture, upgrade building systems and the like.  One year later, Morgan, a district resident and taxpayer, filed suit, arguing that the certificates of participation were really bonds under ORS 328.205 to 328.230, which require approval by district voters.

At trial, the court ruled in favor of the district on the merits of the substantive question.  That is, the debt was lawfully issued using certificates of participation rather than bonds, and a vote of district residents was not required.  Significantly, the court also ruled that Morgan lacked standing to bring the suit in the first place.  Here, Morgan claimed that he potentially faced increased tax bills if the district was unable to make complete and timely payments on the certificates and was forced to assess an additional tax levy to make up the shortfall.  Citing the long chain of events that would have to occur before the result Morgan alleged would ever come to pass, the court found that his reasoning was simply too attenuated to meet the “harm” standard required to file the lawsuit.

On appeal, the Oregon Court of Appeals first affirmed the trial court’s ruling that Morgan lacked standing as a taxpayer to sue the school district because the alleged harm was too speculative.  The court then  rejected Morgan’s argument that he had standing as a voter to bring the lawsuit.  In reaching this conclusion, the court relied on prior cases that hold that standing as a voter is limited to those cases in which allowing the person to vote would have affected the outcome.  Morgan failed to claim that this was such a case.

On appeal to the Oregon Supreme Court, the court effectively affirmed the lower courts on both grounds – that Morgan did not have standing to sue the school district either as a voter or as a taxpayer.  In reaching its conclusions, the court set out three principles it will rely on to determine whether a person has sufficient standing to file a lawsuit against the government.  First, the person must have suffered some injury “beyond an abstract interest in the correct application of the law.”  [It should be noted that the supreme court relied on its 2002 decision in League of Oregon Cities v. State of Oregon for this principle.]  Second, the injury must be “real or probably, not hypothetical or speculative.”  Third, the person must seek a remedy that will actually address the alleged injury.

Applying these principles to Morgan’s lawsuit, the supreme court first addressed his argument that he has standing as a voter of the district.  Citing the third principle, the court pointed out that Morgan did not ask the court to order the district to hold an election.  Instead he simply asked for a declaration that the district should have held one.  That, the court found, would be an advisory opinion which the court does not do.  According to the court, “[Morgan] has offered no explanation as to how the issuance of the judicial declaration that he seeks would have any practical effect on his voting rights, and we are aware on none.”  Significantly, the court also expressed skepticism that a voter has standing if the voter’s participation in an election would not change the outcome but declined to rule on that point.

With respect to Morgan’s contention that he has standing as a taxpayer, the court rejected the claim that the certificates of participation will jeopardize the school district’s ability to provide for daily operations, noting that Morgan failed to explain why or how this will happen.  The court also noted that Morgan did not explain why the school district’s inability to pay for operations affects him in any way.  Finally, on the central allegation that his tax bill will increase if the school district is unable to meet its payment obligations on the certificates of participation and is forced to impose an additional tax levy to pay for them, the court held that this is nothing more than a series of hypothetical contingencies, not a “present set of facts” sufficient to establish standing.

The Impact

The important rule in this case is not the distinction between certificates of participation and bonds – the trial court held that the statutes set out the criteria for each and that the school district properly complied with the requirements for certificates of participation.  The important rule is the supreme court’s affirmation of the standards a person must meet in order to bring a lawsuit against a local government.  It is not enough for a person to have an “abstract interest in the correct application of the law” - every member of the commonweal shares that interest.  In order to have standing to sue a city, county or special district, a person must be able to show that the local government’s decision will have an adverse effect on that person.  Moreover, the person must ask the court for a remedy that will actually address the alleged injury.  They simply can’t  ask the court for a declaration that the government was wrong.  In the end, it is not enough to be a voter or a taxpayer - if someone wants to sue the government, they have to show that the government’s decision will injure their rights, not the public’s, and that the court can issue an order that will remedy the specific injury.  Morgan could not make this showing and the court dismissed his lawsuit on that basis.