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

Filing 20

REPLY to Response to Motion re MOTION to Dismiss by Kenton County Public Library Board of Trustees filed by Kenton County Public Library Board of Trustees. (Hawkins, Michael)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION AT COVINGTON
CASE NO. 2:12-CV-00030-DLB
CHARLIE COLEMAN, et al.

PLAINTIFFS

vs.
CAMPBELL COUNTY LIBRARY
BOARD OF TRUSTEES

DEFENDANT

AND
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION AT COVINGTON
CASE NO. 2:12-CV-0035-DLB
GARTH KUHNHEIN, et al.

PLAINTIFF

v.
KENTON COUNTY LIBRARY
BOARD OF TRUSTEES

DEFENDANTS

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

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

INTRODUCTION
The survival of Plaintiffs’ claims hinges on their contention that KRS 134.590 does not

apply to the present matter. Indeed, Plaintiffs do not dispute that if KRS 134.590 applies to their
claims, then under Kentucky law: none of them have exhausted the requisite administrative
remedies; they cannot maintain a class action lawsuit; their refund claims are subject to a twoyear statute of limitations; and, they would be prohibited from seeking declaratory relief in the
form of tax refunds.

In an effort to avoid the dismissal of their lawsuit, Plaintiffs offer numerous
rationalizations and excuses as to why KRS 134.590 should not apply. As demonstrated below,
however, none of these rationales are supported by the law. In fact, they are inconsistent with the
allegations in the Complaint. Accordingly, KRS 134.590 applies to Plaintiffs’ claims, and
compels dismissal of the Complaint with prejudice.
II.

ARGUMENT
A.

Plaintiffs Must Exhaust the Administrative Remedies Set Forth in
KRS 134.590.

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); Bischoff v. City of Newport, 733
S.W.2d 762 (Ky. App. 1987). KRS 134.590 mandates that anyone seeking a refund of an ad
valorem tax must apply for a refund with the levying authority within two (2) years. 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. Plaintiffs argue that they are not required to
exhaust the administrative remedies set forth in KRS 134.590 by manufacturing false and
illusory exceptions to the statutory requirements. However, an examination of Kentucky law
shows that no such exceptions exist and that Plaintiffs are required to exhaust the administrative
remedies set forth in the statute.
1.

KRS 134.590 applies to all ad valorem taxes.

KRS 134.590 is entitled “Refund of ad valorem taxes or taxes held unconstitutional.” As
its title indicates, there is no qualifier or limitation to the term ‘ad valorem tax.’ Similarly, the
language of KRS 134.590 refers to ad valorem taxes without qualification. For example, Section
(4) states:
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Refunds of ad valorem taxes shall be authorized by the mayor or chief finance
officer of any city, consolidated local government, or urban-county government
for the city, consolidated local government, or urban-county government or for
any special district for which the city, consolidated local government, or urbancounty government is the levying authority, by the county judge/executive of any
county for the county or special district for which the fiscal court is the levying
authority, or by the chairman or finance officer of any district board of education.
(Emphasis Added)
Section (6) states, in 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. (Emphasis Added)
Plaintiffs argue that KRS 134.590 does not apply in this action because they contend that
the Library levies a ‘special’ ad valorem tax as stated under KRS Chapter 173. Plaintiffs’
Response, p. 4. They argue that Kentucky law distinguishes ‘special’ ad valorem taxes from
regular ad valorem taxes and that KRS 134.590 only applies to the latter.
The truth is Kentucky courts have never recognized a distinction between ‘special’ and
regular ad valorem taxes with respect to KRS 134.590. The only distinctions recognized by the
Courts regarding KRS 134.590 dealt with taxes not deemed ad valorem at all. See City of
Bromley v. Smith, 149 S.W.3d 403 (Ky. 2004) (holding that a flat rate life squad fee was not an
ad valorem tax and therefore not subject to KRS 134.590); Maximum Mach. Co. v. City of
Shepherdsville, 17 S.W.3d 890 (Ky. 2000) (holding that KRS 134.590 was expressly limited to
ad valorem taxes and did not apply to occupational license taxes).
Plaintiffs note that several Kentucky cases refer to ‘special’ ad valorem taxes, but none of
these cases establish that ‘special’ ad valorem taxes are different from regular ad valorem taxes
in any meaningful way, much less for the purpose of KRS 134.590. See Hardin County Fiscal
Court v. Hardin County Board of Health, 899 S.W.2d 859 (Ky. App. 1995) (requiring the Fiscal
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Court to set the Health Board’s special ad valorem tax rate pursuant to the rate approved by the
Board of Health); Crafton v. Board of Trustees of the Henderson County Public Library, 554
S.W.2d 82 (Ky. 1977) (holding that a ballot question establishing a library was moot once Fiscal
Court approved library district via petition method.). To the contrary, recent Kentucky decisions
following the enactment of KRS Chapter 132 simply refer to taxes imposed by libraries as
regular ad valorem taxes and make no distinction with taxes levied by other taxing districts. See
Daviess County Pub. Library Taxing Dist. v. Boswell, 185 S.W.3d 651 (Ky. App. 2005)
Lexington-Fayette Urban County Government v. Hayse, 684 S.W.2d 301 (Ky. App. 1984).
Most importantly, there is nothing in the language of KRS 134.590 to suggest that its
provisions would not apply to a ‘special’ ad valorem tax. In short, Plaintiffs cannot point to a
single authority which supports its position that they are exempt from KRS 134.590 only because
the Library levies a ‘special’ ad valorem tax.
2.

KRS 134.590 applies to the Library because it is a local taxing district.

KRS 134.590 applies to ad valorem taxes levied by all local taxing districts. St. Ledger v.
Revenue Cabinet, 942 S.W.2d 893, 900 (Ky. 1997). There are no local taxing districts which are
exempt from these requirements. In their Response, Plaintiffs again try to concoct a faux
distinction to exempt them from the refund requirements of KRS 134.590 by claiming that the
statute only apply to ‘special districts.’ Plaintiffs’ Response, pp. 4-6. Plaintiffs argue that because
the Library is defined as a ‘taxing district’ under Kentucky law, and not a ‘special taxing
district,’ KRS 134.590 does not apply.
Once again, Plaintiffs are trying to make a distinction that does not make a difference.
Kentucky courts have consistently held that KRS 134.590 applies to local taxing districts and
makes no distinctions between ‘special’ and regular taxing districts. See Board of Education of

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Fayette County v. Taulbee, 706 S.W.2d. 827, 829 (Ky. 1986) (“KRS 134.590(3) provides that a
local taxing district may make refunds where the amount of tax paid was in excess of the
amount finally determined to be due.); St. Ledger v. Revenue Cabinet, 942 S.W.2d 893, 900 (Ky.
1997) (“[T]he Department of Revenue must provide refunds for the state under KRS 134.590(2),
while KRS 134.590(6) strictly applies to refunds from local tax districts.”); Revenue Cabinet v.
Gossum, 887 S.W.2d 329, 334 (Ky. 1994) (“[T]he Department of Revenue shall refund under
KRS 134.590(1), and that sections (3), (4), (5), and (6) apply to the refund of all other taxing
districts.) (Emphasis Added).
Plaintiffs acknowledge that the Library is a taxing district as defined under KRS 65.180 –
65.192. Consequently, refunds for ad valorem taxes levied by these taxing districts are governed
under KRS 134.590. There is absolutely no authority to suggest that taxing districts such as the
Library are exempt from these requirements merely because they are not ‘special’ districts.
3.

The refund procedure is set forth in KRS 134.590(3) through (6).

Plaintiffs argue that they are not required to exhaust the administrative requirements of
KRS 134.590 because the Library has not instructed Plaintiffs on how to apply for a refund.
Plaintiff’s Response, pp. 6-7. However, the procedure for applying for a refund of an ad valorem
tax levied by a local taxing district, such as the Library, is set forth in KRS 134.590(3) through
(6). Because the relevant process is statutorily proscribed, Plaintiffs have adequate notice as to
the procedure.
4.

Plaintiffs’ allegations of an unconstitutional taking do no relieve them
of their obligation to exhaust administrative remedies.

Plaintiffs’ assert that they are not required to exhaust the administrative remedies of KRS
134.590 because they are asserting that Chapter 132 is unconstitutional as applied. Plaintiffs are
simply wrong. The Kentucky Supreme Court has held consistently that when a plaintiff argues a
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tax statute or regulation is unconstitutional as applied because it results in an unlawful taking, the
plaintiff must first exhaust administrative remedies prior to seeking a declaratory judgment.
Popplewell’s Alligator Dock No. 1, Inc. v. Revenue Cabinet, 133 S.W.3d 456, 472 (Ky. 2004)
(“In Commonwealth v. DLX, Inc., after remarking that a party need not exhaust administrative
remedies when attacking the constitutionality of a statute or a regulation as void on its face, this
Court held that a party must exhaust administrative remedies prior to seeking judicial review of
an as-applied constitutional challenge.”); Commonwealth v. DLX, Inc., 42 S.W. 3d 624, 625 (Ky.
2001) (“Exhaustion of administrative remedies is not necessary when attacking the
constitutionality of a statute or regulation as void on its face . . . This exception does not apply in
the case at bar, however, because DLX has not challenged the facial validity of the surface
mining statutes and regulations. Rather, as its complaint shows, DLX’s argument is that the
Cabinet’s application of the statutes and regulations resulted in an unconstitutional taking of its
property.”).
Similar to Popplewell and DLX, Plaintiffs are challenging the Library’s application of a
statute. Specifically, Plaintiffs are arguing the Library improperly applied KRS Chapter 132 to
increase the ad valorem tax rate, which resulted in an unlawful taking in violation of the
Constitution. Complaint, ¶¶ 38-42; Plaintiffs’ Response, pp. 7-8. Thus, Plaintiffs are required to
exhaust the administrative remedies set forth in KRS 134.590, and their failure to do so is
grounds for dismissal of their claims. Popplewell’s Alligator, 133 S.W.3d at 459 (reversing the
court of appeals and dismissing the plaintiff’s declaratory judgment action).1
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Later in their Response (pp. 10-11) Plaintiffs again reference the constitutionality of the ad valorem tax, and cite
Kling, 654 S.W.2d 606 for the contention that “Defendants have unilaterally exceeded their authority and adopted an
additional ‘ad valorem’ tax, [thus] said tax is unconstitutional and properly brought before this Court .” Response,
p. 10. Kling offers no support Plaintiffs’ position. In Kling, the Commission sued the Campbell County Clerk
because the Clerk refused to list new tax levies on state and county tax bills. Kling has nothing to do with a
taxpayer’s right to challenge the constitutionality of a statute or their need to exhaust administrative remedies prior
to doing so.

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5.

Application of KRS 134.590 does not violate the jural rights doctrine.

Any contention by Plaintiffs that application of KRS 134.590 violates Kentucky’s jural
rights doctrine is wholly unsupported by the law. Plaintiffs do not cite any authority to support
their position that KRS 134.590 somehow precludes a right of action in negligence that was
recognized at common law prior to the adoption of the 1891 Constitution—because there is
none. In fact, “[i]t is to be recognized ‘that the right to a refund of illegally or improperly
collected taxes does not derive from the common law, but is a matter of legislative grace.’"
Revenue Cabinet v. Gossum, 887 S.W.2d 329, 334 (Ky. 1994) quoting Department of
Conservation v. Co-De Coal Co., 388 S.W.2d 614, 615 (Ky. Ct. App. 1964). The jural rights
doctrine is completely irrelevant to this matter.
6.

Plaintiffs do not have a common law right to a refund.

There is no common law right to a refund where statutory authority for a refund exists.
And where statutory authority exists, a plaintiff “must bring themselves within the terms of the
statute authorizing a refund.” Gossum, 887 S.W.2d at 334 (requiring plaintiffs to comply with
the requirements of KRS 134.590 for recovery of a tax paid under a statute held unconstitutional)
citing Co-De Coal Co., 388 S.W.2d at 615 (requiring plaintiff to comply with KRS 134.580 for
refund where it was determined that plaintiff was not subject to the taxes paid). KRS 134.590
authorizes a refund, and Plaintiffs cannot exercise a common law right to recovery independent
from it. Thus, Plaintiffs’ attempts to establish the “invalidity and involuntariness” elements for a
common law tax refund claim (Plaintiffs’ Response, pp. 9-10) are irrelevant.2 Plaintiffs do not

2

Plaintiffs’ reliance on In Inland Container Corporation v. Mason County, 6 S.W.3d 374 (Ky. 1999) in support of
their common law tax refund claim is misplaced. In that case, the Court turned to common law relief because there
was no refund statute on point for a refund of the occupational taxes in question. Conversely, “in the present case,
there is a statute on point for the refund of ad valorem taxes and that statute is KRS 134.590.” Dep't of Revenue v.
Curtsinger, Nos. 2006-CA-001379, 2006-CA-001462, 2007 Ky. App. Unpub. LEXIS 699, at *12 (Ky. Ct. App. Oct.
26, 2007) (requiring the plaintiffs comply with the refund statute and exhaust administrative remedies).

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have a common law right to a tax refund, and they failed to bring themselves within the terms of
KRS 134.590. Therefore, the Library’s motion to dismiss should be granted.
B.

Plaintiffs Have Conceded Application of KRS 134.590 Eliminates or Limits
Their Claims Substantially.

While Plaintiffs attempt to dispute the applicability of KRS 134.590, they refute very
little, if any, of the Library’s argument that applying KRS 134.590 either eliminates entirely or
severely limits their claims in this case.

In fact, Plaintiffs have essentially conceded that

applying KRS 134.590 is devastating to their case.
1.

Plaintiffs concede KRS 134.590 bars Plaintiffs from seeking
declaratory relief for tax refunds already paid.

Plaintiffs concede application of KRS 134.590 would bar them from pursing a
declaratory judgment requiring a refund of taxes already paid because Plaintiffs have not
exhausted their administrative remedies. Plaintiffs’ Response, pp. 12-13 (“As set forth above,
KRS 134.590 is inapplicable to the case at hand, but should the Court determine otherwise,
Plaintiff has presented a claim for a declaratory judgment to avoid the continued imposition of a
tax based on an illegal rate.”). As explained above, KRS 134.590 applies to Plaintiffs’ claims,
and Plaintiffs are required to exhaust their administrative remedies prior to seeking declaratory
relief for tax refunds. Plaintiffs’ own concessions compel the dismissal of Plaintiffs’ injunctive
relief for return of their tax refunds.
2.

Plaintiffs do not refute application of KRS 134.590 results in a twoyear statute of limitations for their tax refund claims.

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, is required to seek a refund within two years from the date
they allegedly made the excessive tax payment. Thus, even if Plaintiffs win on the merits,
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applicability of KRS 134.590 imposes a two-year statute of limitations for their tax refunds.
Plaintiffs do not contest this result.3 Because KRS 134.590 applies to Plaintiffs’ claims,
Plaintiffs’ request for compensatory damages in the form of tax refunds prior to 2010 must be
dismissed.
3.

Plaintiffs concede class actions are not permitted under KRS 134.590.

In its Motion to Dismiss (pp. 5-8), the Library demonstrated a class action lawsuit is not
permitted under KRS 134.590. Since Plaintiffs have said absolutely nothing to refute this point,
they concede applying KRS 124.590 results in the dismissal of their classwide claims.
C.

The Library is Entitled to Sovereign Immunity for Plaintiffs’ Conversion
Claim.

Plaintiffs do not dispute that sovereign immunity extends to protect a library from tort
claims. Nor do Plaintiffs refute that “[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). Plaintiffs
instead assert simply that a taxpayer can seek a refund of unlawful taxes from the state.
Plaintiffs’ Response, p. 13. The Library does not argue that Plaintiffs cannot seek a refund of
taxes in court, assuming Plaintiffs follow the proper procedures necessary to vest the court with
jurisdiction. Instead, the Library moves to dismiss Plaintiffs’ conversion claim because a cause
of action for conversion against the Library is barred by the doctrine of sovereign immunity.

3

Instead, Plaintiffs merely proclaim KRS 134.590 inapplicable, and assert they are entitled to a common law
statute of limitations of five years. However, as discussed above, Plaintiffs are not entitled to assert a common law
right to a tax refund. In Maximum Machine Co., Inc. v. City of Shepherdsville, 17 S.W.3d 890 (Ky. 2000), a case
relied upon by Plaintiffs, the Court found the statute of limitations in KRS 134.590 inapplicable because the
challenged ordinance was an occupational license tax, not an ad valorem tax. The issues in the present case
involve an ad valorem tax, and thus, Maximum does not apply.

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Plaintiffs do not contradict this contention, and thus, their conversion claim should be dismissed
for failure to state a claim upon which relief can be granted.
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/ Michael W. Hawkins
Michael W. Hawkins, Esq. (82949)
Cori R. Stirling (admitted pro hac vice)
Dinsmore & Shohl LLP
255 East Fifth Street, Suite 1900
Cincinnati, Ohio 45202
Phone: [phone]
Fax: [phone]
Mary Ann Stewart
ADAMS, STEPNER,
WOLTERMANN & DUSING, PLLC
40 W. Pike Street
P.O. Box 861
Covington, KY 41012
Phone: [phone]
Fax: [phone]
Email: [e-mail]
Attorneys for Defendant Kenton County
Public Library Board of Trustees

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CERTIFICATION
This is to certify that on the 4th day of May, 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/ Michael W. Hawkins
Michael W. Hawkins, Esq.
Dinsmore & Shohl LLP
255 East Fifth Street, Suite 1900
Cincinnati, Ohio 45202
Phone: [phone]
Fax: [phone]

722658.1

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