Coleman et al v. Campbell County Public Library Board of Trustees

Filing 11

MOTION to Dismiss with memorandum in support for failure to state a claim by Campbell County Public Library Board of Trustees (Mando, Jeffrey) Modified to add memo in support on 2/23/2012 (TED). (Additional attachment(s) added on 2/24/2012: # 1 Proposed Order) (ECO).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION at COVINGTON
CASE NO. 2012-CV-00030
CHARLIE COLEMAN, ET AL.

PLAINTIFFS

vs.
CAMPBELL COUNTY LIBRARY
BOARD OF TRUSTEES

DEFENDANT

DEFENDANT’S MOTION TO DISMISS PLAINTIFFS’ COMPLAINT

Pursuant to Fed. R. Civ. P. 12(b)(6), Defendant Campbell County Library Board of
Trustees moves to dismiss Plaintiffs’ Class Action Complaint with Jury Trial Demand and
Declaration of Rights (“Complaint”), with prejudice. Plaintiffs’ Complaint should be dismissed
in its entirety because Plaintiffs have failed to state a claim upon which relief can be granted.
First, Plaintiffs have not alleged that they exhausted their administrative remedies prior to filing
this lawsuit, as mandated by KRS § 134.590. Second, even if Plaintiffs had allegedly exhausted
their administrative remedies, they are precluded from asserting a class action for tax refunds
under KRS § 134.590. Third, Plaintiffs’ claims for tax refunds for the years prior to January 18,
2010 should be dismissed because the two-year statute of limitations in KRS § 134.590 has run
on those claims. Finally, Plaintiffs’ conversion claim should be dismissed because the Library
has sovereign immunity from liability on all tort claims.

Respectfully submitted,

/s/ Jeffrey C. Mando
Jeffrey C. Mando (#43548)
Louis D. Kelly (#92094)
ADAMS, STEPNER,
WOLTERMANN & DUSING, P.L.L.C.
40 W. Pike Street, P.O. Box 861
Covington, Kentucky 41012-0861
[phone]
[phone]
Attorneys for Defendant, Campbell County Library
Board of Trustees

CERTIFICATION
This is to certify that on the 22nd day of February, 2012, I electronically filed the
foregoing with the clerk of the court by using the CM/ECF system, which will send a notice of
electronic filing to: Brandon N. Voelker.
/s/ Jeffrey C. Mando
Jeffrey C. Mando (#43548)
ADAMS, STEPNER,
WOLTERMANN & DUSING, P.L.L.C.
40 W. Pike Street, P.O. Box 861
Covington, Kentucky 41012-0861
[phone]
[phone]
[e-mail]

2

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION at COVINGTON
CASE NO. 2012-CV-00030
CHARLIE COLEMAN, ET AL.

PLAINTIFFS

vs.
CAMPBELL COUNTY LIBRARY
BOARD OF TRUSTEES

DEFENDANT

DEFENDANT’S MEMORANDUM IN SUPPORT OF ITS
MOTION TO DISMISS PLAINTIFFS’ COMPLAINT

The Defendant, Campbell County Library Board of Trustees, by and through counsel, for
its Memorandum in Support of its Motion to Dismiss, states as follows:
I.

FACTUAL BACKGROUND
On January 18, 2012, Charlie Coleman, John P. Roth, Jr. and Erik Herms (“Plaintiffs”)

filed a Class Action Complaint with Jury Trial Demand and Declaration of Rights (“Complaint”)
against the Campbell County Public Library Board of Trustees (the “Library”) in Campbell
Circuit Court. In relevant part, Plaintiffs allege they are residents and property owners in the
County of Campbell, Kentucky, and have paid taxes to the Library as set forth on their yearly
county tax bills. Complaint, ¶ 2. According to Plaintiffs, KRS 173.790 governs the increase or
decrease of the tax levy for the Library and states that the ad valorem tax rate “shall not be
increased or decreased unless a duly certified petition requesting an increase or decrease in the
tax rate of a specifically stated amount is signed by fifty one (51% of the number of duly
qualified voters voting in the last general election . . . .” Id. at ¶ 7. At the time of the formation

of the Library, the ad valorem tax rate was set as the equivalent of $0.30 per one thousand dollars
of value on a home. Id. at ¶ 8.
Plaintiffs allege that from 1994-2011 the Library has incrementally increased its ad
valorem tax rate from $0.38 to $0.457. Id. at ¶ 9. In enacting these increases, Plaintiffs assert that
the Library has disregarded KRS 173.790 (Id. at ¶¶ 17-18), which has resulted in many years
with the rates being over the authorized $.030 per one thousand dollars rate. Id. at ¶ 10. Further,
Plaintiffs allege that, as a result of the purported improper tax increases, they and the proposed
class members are owed not only a refund of $2,218,497.83 for the year 2010, but also for all
other years where the tax has been increased above $.030 per one thousand dollars tax rate (a.k.a
1994-2011). Id. The putative class consists of “All property owners/or taxpayers, who have paid
Campbell County Library taxes in excess of the last lawfully set rate set by certified petition.”
Id. at ¶ 19.
Plaintiffs assert four causes of action in their Complaint: declaratory judgment against the
Library concerning the assessment and collection of ad valorem taxes in excess of the rate
established by KRS Chapter 173 (Count I); Conversion (Count II); unlawful taking per 42 U.S.C.
§ 1983 (Count III); and unjust enrichment (Count IV). Id. at ¶¶ 28-46. In terms of relief,
Plaintiffs seek injunctive relief requiring the Library to issue refunds for taxes billed an collected
in excess of the statutorily approved rate of $0.30 per one thousand dollars; injunctive relief
preventing the Library from increasing its tax rate unless KRS 173.790 is complied with;
compensatory damages in the form of refunds, with interest; a declaratory judgment that KRS
173.790 governs the tax rate and the ability to increase or decrease the rate; prejudgment interest,
court costs and attorneys fee, per 42 U.S.C. § 1983; and certification of a class.

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On February 2, 2012, the Library removed the action to this Court because of the federal
claims asserted in the Complaint and it now seeks to dismiss the Complaint pursuant to Fed. R.
Civ. P. 12(b)(6) because Plaintiffs have failed to state a claim upon which relief can be granted.
II.

ARGUMENT
Plaintiffs’ Complaint should be dismissed because they fail to state a claim upon which

relief can be granted. First, Plaintiffs have not alleged that they exhausted their administrative
remedies prior to filing this lawsuit, as mandated by KRS 134.590. Second, even if Plaintiffs
have exhausted their administrative remedies, they are precluded from asserting a class action for
tax refunds under KRS 134.590. Third, Plaintiffs’ claims for tax refunds for the years prior to
2010 should be dismissed because the two-year statute of limitations in KRS 134.590 has run on
those claims. Finally, Plaintiffs’ conversion claim should be dismissed because the Library has
sovereign immunity from all tort claims.
A.

Because Plaintiffs do not allege that they filed a claim requesting a tax refund
prior to filing this lawsuit, they have failed to exhaust their administrative
remedies.

Plaintiffs’ Complaint should be dismissed because they do not allege that they filed a
claim requesting a tax refund under KRS 134.590 prior to filing suit. Before filing a lawsuit
seeking a refund for excess payment of ad valorem taxes, a taxpayer must first exhaust
administrative remedies, as mandated by KRS 134.590. Cromwell Louisville Assoc. v. Kentucky,
323 S.W.3d 1, 7 (Ky. 2010) (citing Ky. Rev. Stat. §134.590 and holding that “a taxpayer must
exhaust the administrative remedy procedures before seeking a refund”); Bischoff v. City of
Newport, 733 S.W.2d 762 (Ky. App. 1987). If a plaintiff fails to exhaust administrative remedies
prior to filing a lawsuit for a tax refund, the complaint should be dismissed. Bischoff, 733
S.W.2d at 764. Accord: Department of Revenue v. Curtsinger, No. 2006-CA-001379 and 2006-

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CA-001462, 2007 Ky. App. Unpub. LEXIS 699, at *16-17 (Ky. App. Oct. 26, 2007)
(acknowledging that when a taxpayer alleges that an ad valorem tax was paid where the taxes
were not owed, the taxpayer is required to exhaust the administrative remedies of KRS 134.590
prior to filing suit).
KRS 134.590(6) states, in relevant part:
No refund for ad valorem taxes, except those held unconstitutional, shall be made
unless the taxpayer has properly followed the administrative remedy procedures
established through the protest provisions of KRS 131.110, the appeal provisions
of KRS 133.120, the correction provisions of KRS 133.110 and 133.130, or other
administrative remedy procedures.
In Bischoff, the City of Newport enacted ordinances establishing the city’s ad valorem tax
rates for the years 1980 to 1985. 733 S.W.2d at 763. The plaintiff filed suit challenging the
ordinances as violating KRS 132.027, which limited the tax rate a city could set. Id. The
complaint requested the circuit court to declare the ordinances invalid and require the refund of
the excess taxes paid for those years. Id. The city moved to dismiss, arguing that the plaintiff
failed to exhaust his administrative remedies as required by KRS 134.590 prior to filing a
lawsuit. Id. The circuit court granted the city’s dismissal. On appeal, the appellate court upheld
the circuit court’s dismissal. Id. The court rejected the plaintiff’s contention that the circuit court
should have declared whether the tax rates were valid merely because it was a proper subject for
a declaration of rights; instead holding that a declaration of rights is appropriate only where an
“actual controversy” exists. Id. The court found that, where the taxpayer has paid a tax which he
or she later concludes was based upon an illegal rate and seeks a refund, “the tax payer must
exhaust that remedy [in KRS 134.590] before seeking a refund judicially . . . .” Id. at 764. The
Bischoff court found that since “the timely administrative application for a refund is a condition
precedent to entitlement to recover a tax already paid, it must follow that such application is also

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necessary to create an actual controversy with respect to the rate upon which that tax is based.”
Id. Accord: Light v. City of Louisville, 93 S.W.3d 696, 697 (Ky. App. 2002); City of Somerset v.
Bell, 156 S.W.3d 321, 330 (Ky. App. 2005).
Like the Plaintiffs in Bischoff, Light and Bell, Plaintiffs are asking this court to declare
that the Library increased its ad valorem tax rate in violation of a Kentucky statute and they seek
a refund.1 Specifically, Plaintiffs assert that “KRS 173.790 governs any increases or decreases to
said [ad valorem tax] rate” and that the Library has increased the rate “in violation of KRS
173.790.” Complaint, ¶¶ 30-31. As a result, Plaintiffs seek a refund of taxes collected in excess
of the proposed statutorily approved rate of $0.30 per one thousand dollars of property value.
Nowhere in their Complaint, however, do Plaintiffs allege they have “followed the
administrative remedy procedures established through the protest provisions of KRS 131.110,
the appeal provisions of KRS 133.120, the correction provisions of KRS 133.110 and 133.130,
or other administrative remedy procedures [such as filing a claim for a refund],” prior to filing
this lawsuit, as is required under KRS § 134.590. See Complaint, ¶¶ 1-46. Therefore, Plaintiffs’
Complaint must be dismissed for failure to exhaust administrative remedies.
B.

Because Plaintiffs cannot maintain a class action for a refund of the alleged
excess taxes paid, their request for compensatory damages on behalf of the
class should be dismissed.

Plaintiffs seek to represent a class of “All property owners/or taxpayers, who have paid
Campbell County Library taxes in excess of the last lawfully set rate set by certified petition.”
Complaint, ¶ 19. As part of the class wide relief sought, Plaintiffs request “judgment and award
1

Because Plaintiffs’ lawsuit seeks to recover money paid as excess taxes by an allegedly illegal assessment, this
Court is not divested of jurisdiction by the Tax Injunction Act, 28 USC § 1341. See Central Steel & Wire Co. v.
Detroit, 99 F. Supp. 639, 640-641 (D. Mich. 1951) (“It is not apparent to this Court that a statute which in plain
language prohibits a District Court from enjoining, suspending or restraining the assessment, levy or collection of
any tax under state law had any conceivable application to this cause of action. A suit to recover money paid as
taxes by an allegedly illegal assessment is far removed from an action to enjoin, suspend or restrain the assessment,
levy or collection of a tax, and to hold that Section 1341, Title 28 U.S.C.A controls such an action at law would
require this Court to ignore well established principles of statutory construction.”).

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of compensatory damages, in the form of refunds, with interest, against the Defendant Library in
the amount to be determined by the finder.” Complaint, p. 9.
Class relief is not available to obtain a refund of ad valorem taxes because in Kentucky
each taxpayer is required to apply for a refund of taxes individually before seeking judicial
redress. KRS 134.590(6) provides:
“(6) No refund shall be made unless each taxpayer individually applies within two
(2) years from the date payment was made. If the amount of taxes due is in
litigation, the taxpayer shall individually apply for refund within two (2) years
from the date the amount due is finally determined. Each claim or application for
a refund shall be in writing and state the specific grounds upon which it is based.
No refund for ad valorem taxes, except those held unconstitutional, shall be made
unless the taxpayer has properly followed the administrative remedy procedures
established through the protest provisions of KRS 131.110, the appeal provisions
of KRS 133.120, the correction provisions of KRS 133.110 and 133.130, or other
administrative remedy procedures.” (emphasis added).
The current language of the statute could not be any clearer. “[T]he taxpayer shall
individually apply for a refund . . .” (emphasis added). KRS 134.590(6) provides a mandatory
administrative procedure for seeking refunds from the Department of Revenue and other taxing
agencies. Indeed, in Board of Education of Fayette County v. Taulbee, 706 S.W.2d. 827, 828-29
(Ky. 1986), the Kentucky Supreme Court, addressing this very issue and statute, held that since
KRS 134.590(6) provided a specific, mandatory procedure to seek refunds, class action relief
was unavailable for the refund of taxes. The Taulbee holding was re-affirmed in the later
Kentucky Supreme Court decision, Griggs v. Dolan, 759 S.W.2d. 593, 597 (Ky. 1988).
In 2005, the Kentucky Court of Appeals, in City of Somerset v. Bell, 156 S.W.3d. 321
(Ky. App. 2005) appeared to reverse direction from the Kentucky Supreme Court precedent set
forth in Taulbee and Griggs. In Bell, a group of taxpayers, living in an area annexed by the City
of Somerset, brought a class action lawsuit alleging that the City of Somerset had improperly
collected ad valorem property taxes from them. The trial court, relying upon Taulbee, supra.,
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concluded that although the taxpayers were entitled to a refund, they were precluded from
recovering funds in a class-action lawsuit. The Kentucky Court of Appeals however, held that
class action relief was available because in 1996, and after the Supreme Court decision in
Taulbee, the Kentucky Legislature had amended KRS 134.590(6) and removed the phrase “in
each case.” Thus, the Kentucky Court of Appeals in Bell concluded that the Kentucky
Legislature had in effect repealed the Taulbee holding.
Significantly, after the Court of Appeal’s decision in Bell, the Kentucky Legislature again
re-visited KRS 134.590(6). In 2006, the Kentucky Legislature amended the statute to add in the
words “each taxpayer individually applies for a [refund].” KRS 134.590.2 Moreover, in the
Preamble to this amendment, the General Assembly stated that it:
“wishe[d] to make it clear that each taxpayer must file an individual refund
claim and that the filing of a class action lawsuit does not constitute a timely
filing for each member or the class . . . .” (emphasis added)
It is clear that the Bell decision was an aberration; and that the current version of KRS
134.590, much like the language in the statute prior to the Kentucky Court of Appeal’s decision
in Bell, prohibits taxpayers from maintaining class action lawsuits to recover tax refunds.
Plaintiffs’ class action complaint must be dismissed as a matter of law, because KRS
134.590 precludes recovery of ad valorem tax refunds on a class action basis. Even in those
cases where courts have determined that a local government charged an improper, excessive or
invalid ad valorem tax, the relief sought – namely class action refund -- has been denied because
each taxpayer is required to apply for a refund individually under Kentucky’s statutory scheme.
KRS 134.590(6); Griggs v. Dolan, 759 S.W.2d 593, 597 (Ky. 1988); Board of Education v.

2

KRS 134.590(6) currently reads in part “ No refund shall be made unless each taxpayer individually applies within
two (2) years from the date payment was made.

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Taulbee, 706 S.W.2d 827, 829 (Ky. 1986).3 Accordingly, even if this Court found that the
Library raised the ad valorem tax rate in violation of KRS 173.790, Plaintiffs cannot obtain
refunds on a class wide basis. Thus, Plaintiffs’ request for class wide compensatory damages in
the form of refunds must be dismissed.4
C.

Plaintiffs’ claims for tax refunds prior to 2010 are barred by the statute of
limitations.

Plaintiffs seek tax refunds for all alleged excessive taxes due from 1994 to the present.
Complaint, ¶ 9. KRS 134.590, however, provides for a two-year statute of limitations. Plaintiffs
filed this action on January 18, 2012. Therefore, even if Plaintiffs were successful on the merits,
their claims seeking a tax refund for alleged excess tax payments made prior to 2010 must be
dismissed.
Pursuant to KRS 134.590(6), “No refund shall be made unless each taxpayer individually
applies within two (2) years from the date payment was made.” Accordingly, Plaintiffs, as well
as each class member individually, are required to seek a refund within two years from the date
they allegedly made the excessive tax payment. While the statute also provides that “if the
amount of taxes due is in litigation, the taxpayer shall individually apply for a refund within two
(2) years from the date the amount due is finally determined,” this provision does not save any
claim for a tax refund Plaintiffs may have had prior to January 18, 2012, the date they filed this
lawsuit. “If no litigation is filed in two years, the time for administrative application will expire
after two years elapse from the date payment was made.” Griggs, 759 S.W.2d at 596. Thus,
subsequent litigation challenging the amount of taxes owed that is filed more than two years after
the tax is paid “will not benefit the taxpayer individually by extending the time for applying for a

3

Plaintiffs’ request for interest on the refunds should also be dismissed. Bell, 156 S.W.3d at 330 (“We reject the
taxpayers’ claim that they are owed interest on their refunds” because KRS § 134.590 “does not explicitly allow for
interest on refunds of ad valorem taxes.”).

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refund.” Id. Translated into present circumstances, Plaintiffs’ right to file for a refund under KRS
134.590 prior to this lawsuit expired two years after the taxes were paid because no litigation
was filed that would have otherwise tolled the statute of limitations. Id.
A taxpayer is required to comply with the two-year statute of limitations in KRS 134.590,
even if the results are “harsh.” Department of Revenue v. Curtsinger, No. 2006-CA-001378 and
2006-CA-001462, 2007 Ky. App. Unpub. LEXIS 699, at *13 (Ky. App. Oct. 26, 2007). “The
two-year statute of limitations is necessary to protect the state’s fiscal security, shielding the state
from having to repay to taxpayers millions of dollars, which had presumably been allocated to
various requirements of the state’s budget, years after a tax was collected.” Revenue Cabinet v.
Gossum, 887 S.W.2d 329, 335 (Ky. 1994).
D.

Plaintiffs’ conversion claim must be dismissed because the Library has
sovereign immunity against tort liability.

Plaintiffs’ conversion claim against the Library fails to state a claim upon which relief
can be granted because the Library has sovereign immunity against tort liability. “[T]he
sovereign state cannot be held liable in a court of law for either intentional or unintentional torts
committed by its agents.” Calvert Investments, Inc. v. Louisville & Jefferson Co. Metro. Sewer
Dist., 805 S.W.2d 133, 139 (Ky. 1991). If an entity is a state agency, then it “is entitled to
immunity from tort liability to the extent that is performing a governmental, as opposed to a
proprietary, function.” Yanero v. Davis, 65 S.W.3d 510, 519 (Ky. 2001) (holding that the
Kentucky High School Athletic Association is the agent of the Kentucky Board of Education,
which is an agent of the Commonwealth, and therefore, qualifies for sovereign immunity).
It is well-settled law that counties are state agencies, and that, not only are they cloaked
with sovereign immunity, but agencies which derive their genesis from county government
likewise enjoy sovereign immunity from tort claims. See Caneyville Volunteer Fire Dept. v.

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Green’s Motorcycle Savage, Inc., 286 S.W.3d 790, 805 (Ky. 2009) (finding that fire departments
are government agents engaging in governmental functions, and thus, “are cloaked in immunity
from suit in tort”); Comair Inc. v. Lexington-Fayette Urban County Airport Corporation, 295
S.W.3d 91 (Ky. 2009) (holding that a city-county airport board has sovereign immunity). The
key to the inquiry is whether the entity is exercising a function that is integral to state
government. Thus, in Comair, supra, the Kentucky Supreme Court observed that sovereign
immunity should "extend . . . to departments, boards or agencies that are such integral parts of
state government as to come within regular patterns of administrative organization and
structure." 801 S.W.2d at 332 (internal quotation marks omitted). The focus, however, is on state
level governmental concerns that are common to all of the citizens of this state, even though
those concerns may be addressed by smaller geographic entities (e.g., by counties). Such
concerns include, but are not limited to, police,

public education, corrections, tax collection,

and public highways.
Applying the Comair analysis, sovereign immunity clearly extends to protect a library
from tort claims, in the same manner as it does for all other similarly-situated state agencies,
departments, or boards. Indeed, at least one Kentucky court has expressly acknowledged that
operation of a county library “is manifestly a governmental function” and a library board acts in
a “governmental capacity.” Alvey v. Birgham, 150 S.W.2d 935, 940 (Ky. App. 1940). County
libraries were created by state statutes solely for the purpose of providing public library services
on a state-wide basis to the general public, and are subject to state administrative regulation and
control. Therefore, the Library, and its governing board are cloaked with sovereign immunity,
and cannot be held liable on Plaintiffs’ tort claims. Consequently, Plaintiffs’ conversion claim
must be dismissed as a matter of law.

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III.

CONCLUSION
For the foregoing reasons, the Library’s Motion to Dismiss should be granted, and the

Plaintiffs’ Complaint should be dismissed, with prejudice at Plaintiffs’ cost.

Respectfully submitted,
/s/ Jeffrey C. Mando
Jeffrey C. Mando (#43548)
Louis D. Kelly (#92094)
ADAMS, STEPNER,
WOLTERMANN & DUSING, P.L.L.C.
40 W. Pike Street, P.O. Box 861
Covington, Kentucky 41012-0861
[phone]
[phone]

Attorneys for Defendant Campbell County Library
Board of Trustees

CERTIFICATION
This is to certify that on the 22nd day of February, 2012, I electronically filed the
foregoing with the clerk of the court by using the CM/ECF system, which will send a notice of
electronic filing to: Brandon N. Voelker.
/s/ Jeffrey C. Mando
Jeffrey C. Mando (#43548)
ADAMS, STEPNER,
WOLTERMANN & DUSING, P.L.L.C.
40 W. Pike Street, P.O. Box 861
Covington, Kentucky 41012-0861
[phone]
[phone]
[e-mail]
722658.1
2/22/2012

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